UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2002
Commission File Number: 0-30031
MAIN STREET TRUST, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Illinois 37-1338484
--------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
100 West University, Champaign, Illinois 61820
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(217) 351-6500
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by "X" whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES [ X ] NO [ ]
Indicate the number of shares outstanding of the registrant's common stock, as
of November 12, 2002
Main Street Trust, Inc. Common Stock 10,469,232
1
Table of Contents
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 25
Item 4. Controls and Procedures 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities 25
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURES AND CERTIFICATIONS 27
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2002 and December 31, 2001
(Unaudited, in thousands, except share data)
September 30, December 31,
2002 2001
---------------------------
ASSETS
Cash and due from banks .......................................................... $ 51,242 $ 87,895
Federal funds sold and interest earning deposits ................................. 4,079 7,484
Investments in debt and equity securities:
Available-for-sale, at fair value .............................................. 250,766 266,496
Held-to-maturity, at cost (fair value of $66,263 and $64,727
at September 30, 2002 and December 31, 2001, respectively) ................... 63,679 63,818
Non-marketable equity securities ............................................... 6,716 5,108
Mortgage loans held for sale ..................................................... 3,694 8,775
Loans, net of allowance for loan losses of $9,490 and $9,259
at September 30, 2002 and December 31, 2001, respectively ...................... 677,077 673,061
Premises and equipment ........................................................... 18,811 19,259
Accrued interest receivable ...................................................... 8,165 8,890
Other assets ..................................................................... 11,360 10,725
--------------------------
Total assets ............................................................. $ 1,095,589 $ 1,151,511
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing ................................................. $ 112,297 $ 133,406
Demand, interest bearing ..................................................... 81,216 111,241
Savings ...................................................................... 312,299 267,838
Time, $100 and over .......................................................... 125,646 140,042
Other time ................................................................... 231,663 231,582
--------------------------
Total deposits ........................................................... 863,121 884,109
Federal funds purchased, repurchase agreements and notes payable ................. 58,566 85,207
Federal Home Loan Bank advances and other borrowings ............................. 29,823 34,895
Accrued interest payable ......................................................... 2,634 3,390
Other liabilities ................................................................ 9,277 7,917
--------------------------
Total liabilities ........................................................ 963,421 1,015,518
--------------------------
Shareholders' equity:
Preferred stock, no par value; 2,000,000 shares authorized .................... -- --
Common stock, $0.01 par value; 15,000,000 shares authorized; 11,219,319 and
11,111,281 shares issued at September 30, 2002 and December 31, 2001,
respectively ................................................................. 112 111
Paid in capital ................................................................ 55,358 54,147
Retained earnings .............................................................. 90,172 83,810
Accumulated other comprehensive income ......................................... 3,965 2,750
--------------------------
149,607 140,818
Less: treasury stock, at cost, 748,727 and 267,783 shares at September 30, 2002
and December 31, 2001, respectively ............................................ (17,439) (4,825)
--------------------------
Total shareholders' equity ............................................... 132,168 135,993
--------------------------
Total liabilities and shareholders' equity ............................... $ 1,095,589 $ 1,151,511
==========================
See accompanying notes to unaudited consolidated financial statements.
3
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the Three Months Ended September 30, 2002 and 2001
(Unaudited, in thousands, except share data)
2002 2001
----------------------------
Interest income:
Loans and fees on loans ...................................... $ 11,999 $ 13,795
Investments in debt and equity securities
Taxable .................................................... 3,177 3,349
Tax-exempt ................................................. 589 604
Federal funds sold and interest earning deposits ............ 106 292
----------------------------
Total interest income .................................. 15,871 18,040
Interest expense:
Demand, savings, and other time deposits ..................... 3,432 5,836
Time deposits $100 and over .................................. 1,246 1,253
Federal funds purchased, repurchase agreements and notes
payable .................................................... 270 619
Federal Home Loan Bank advances and other borrowings ......... 451 597
----------------------------
Total interest expense ................................. 5,399 8,305
----------------------------
Net interest income .................................... 10,472 9,735
Provision for loan losses ...................................... 330 235
----------------------------
Net interest income after provision for loan losses .... 10,142 9,500
Non-interest income:
Remittance processing ........................................ 1,769 1,785
Trust and brokerage fees ..................................... 1,743 1,365
Service charges on deposit accounts .......................... 612 561
Gain on sales of mortgage loans, net ......................... 378 175
Securities transactions, net ................................. (62) 83
Other ........................................................ 164 363
----------------------------
Total non-interest income .............................. 4,604 4,332
Non-interest expense:
Salaries and employee benefits ............................... 4,556 4,281
Occupancy .................................................... 598 549
Equipment .................................................... 707 739
Data processing .............................................. 494 488
Office supplies .............................................. 325 392
Service charges from correspondent banks ..................... 226 221
Other ........................................................ 1,151 1,134
----------------------------
Total non-interest expense ............................. 8,057 7,804
Income before income taxes ............................. 6,689 6,028
Income taxes ................................................... 2,210 1,984
----------------------------
Net income ............................................. $ 4,479 $ 4,044
============================
Per share data:
Basic earnings per share ..................................... $ 0.43 $ 0.37
Weighted average shares of common stock outstanding .......... 10,486,735 10,916,747
Diluted earnings per share ................................... $ 0.42 $ 0.36
Weighted average shares of common stock and dilutive potential
common shares outstanding .................................. 10,591,587 11,120,508
See accompanying notes to unaudited consolidated financial statements.
4
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
For the Three Months Ended September 30, 2002 and 2001
(Unaudited, in thousands)
2002 2001
--------------------
Net income ............................................ $ 4,479 $ 4,044
--------------------
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding gains arising during period,
net of tax 1 of $635 and $612, for September 30,
2002 and 2001, respectively ..................... 953 1,186
Less: reclassification adjustment for losses
(gains) included in net income, net of tax1 of
$25 and ($29), for September 30, 2002
and 2001, respectively .......................... 37 (54)
--------------------
Other comprehensive income, net of tax ............ 990 1,132
--------------------
Comprehensive income .............................. $ 5,469 $ 5,176
===================
See accompanying notes to unaudited consolidated financial statements.
5
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2002 and 2001
(Unaudited, in thousands)
2002 2001
----------------------
Cash flows from operating activities:
Net income .......................................................... $ 12,932 $ 11,776
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ..................................... 1,989 2,009
Amortization (accretion) of bond discounts and premiums, net ...... 830 (179)
Provision for loan losses ......................................... 990 845
Securities transactions, net ...................................... (228) (302)
Gain on sales of mortgage loans, net .............................. (773) (490)
Federal Home Loan Bank stock dividend ............................. (121) (135)
Proceeds from sales of mortgage loans originated for sale ......... 79,865 60,060
Acquisitions of mortgage loans originated for sale ................ (74,011) (65,911)
Other, net ........................................................ 25 (2,080)
----------------------
Net cash provided by operating activities ..................... 21,498 5,593
----------------------
Cash flows from investing activities:
Net increase in loans ............................................... (5,295) (16,894)
Proceeds from maturities and calls of investments in debt securities:
Held-to-maturity .................................................. 1,841 28,559
Available-for-sale ................................................ 72,620 58,332
Proceeds from sales of investments:
Available-for-sale ................................................ 44,732 89,715
Purchases of investments in debt and equity securities:
Held-to-maturity .................................................... (14,058) (22,135)
Available-for-sale ................................................ (108,702) (176,252)
Other equity securities ........................................... (1,720) (500)
Principal paydowns from mortgage-backed securities:
Held-to-maturity .................................................. 12,262 6,932
Available-for-sale ................................................ 8,934 2,515
Principal paydowns on other equity securities ....................... 106 31
Purchases of premises and equipment ................................. (1,531) (1,150)
Proceeds from sales of premises and equipment ....................... 10 --
-----------------------
Net cash provided by (used in) investing activities ........... 9,199 (30,847)
----------------------
Cash flows from financing activities:
Net decrease in deposits ............................................ (20,988) (3,383)
Net (decrease) increase in federal funds purchased,
repurchase agreements, and notes payable .......................... (26,641) 9,162
Advances from Federal Home Loan Bank and other borrowings ........... 13,000 5,000
Payments on Federal Home Loan Bank and other borrowings ............. (18,072) (6,068)
Cash dividends paid ................................................. (4,273) (3,343)
Issuance of new shares of common stock, net ......................... 1,222 --
Treasury stock transactions, net .................................... (15,003) (2,021)
----------------------
Net cash used in financing activities ......................... (70,755) (653)
----------------------
Net decrease in cash and cash equivalents ..................... (40,058) (25,907)
Cash and cash equivalents at beginning of year ........................ 95,379 84,139
----------------------
Cash and cash equivalents at end of period ............................ $ 55,321 $ 58,232
======================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest .......................................................... $ 17,522 $ 27,552
Income taxes ...................................................... 6,734 5,486
Real estate acquired through or in lieu of foreclosure .............. 289 --
Dividends declared not paid ......................................... 1,361 1,197
See accompanying notes to unaudited consolidated financial statements.
6
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements for Main Street
Trust, Inc. have been prepared in accordance with the instructions to Form 10-Q
and therefore do not include all information and footnotes necessary for fair
presentation of financial position, results of operations, and cash flows in
conformity with accounting principles generally accepted in the United States of
America. These financial statements should be read in conjunction with the
audited consolidated financial statements and related notes as of and for the
year ended December 31, 2001, and schedules included in Main Street Trust,
Inc.'s. Form 10-K filed on March 20, 2002.
In the opinion of management, the consolidated financial statements of Main
Street Trust, Inc. (the "Company") and its subsidiaries, as of September 30,
2002 and for the three-month and nine-month periods ended September 30, 2002 and
2001, include all adjustments necessary for a fair presentation of the results
of those periods. All such adjustments are of a normal recurring nature.
Results of operations for the three-month and nine-month periods ended September
30, 2002 are not necessarily indicative of the results which may be expected for
the year ended December 31, 2002.
For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash and due from banks and federal funds sold and interest
earning deposits. Generally, federal funds are sold for one-day periods.
Certain amounts in the 2001 consolidated financial statements have been
reclassified to conform with the 2002 presentation. Such reclassifications have
no effect on previously reported net income.
Note 2. Company Information/Business Combination
On March 23, 2000, BankIllinois Financial Corporation and First Decatur
Bancshares, Inc. completed a "merger of equals" between the two companies,
structured as a merger of the two companies into the Company. The merger has
been accounted for as a pooling of interests and, accordingly, all prior
financial statements have been restated to include both companies. As a result
of the merger, former shareholders of BankIllinois Financial Corporation and
First Decatur Bancshares, Inc. received 6,119,673 and 4,990,281 shares of
Company common stock, respectively.
The Company operates 17 banking centers and is the parent company of
BankIllinois, First National Bank of Decatur, and FirsTech, Inc., a retail
payment processing company. The Company received approval from its bank
regulators to merge BankIllinois and the Company's former banking subsidiary,
First Trust Bank of Shelbyville. The merger was effective June 19, 2002 and the
resulting bank is BankIllinois. The merger is not expected to have a significant
impact on the consolidated financial statements.
On June 14, 2001, the Company was certified by the Board of Governors of the
Federal Reserve System as a financial holding company. This designation allows
the Company to engage in a wider range of nonbanking activities, including
greater authority to engage in securities and insurance activities. However, the
Company has no current plans to do so.
On April 23, 2002, the Company commenced a tender offer to acquire up to
1,200,000 of its shares of common stock at a price of $23.00 per share. The
tender offer was completed on June 7, 2002 with 711,832 shares, representing
approximately 6.3% of the total shares outstanding, repurchased at a cost,
including expenses, of $16.556 million.
Note 3. New Accounting Rules and Regulations
In June 2001, Statement on Financial Accounting Standards No. 143 "Accounting
for Asset Retirement Obligations" was issued to address financial reporting and
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement applies to all entities and to
legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development or normal operations of a
long-lived asset, except for certain obligations of lessees. Statement No. 143
is effective for financial statements issued for fiscal years beginning after
June 15, 2002. Management does not believe the adoption of Statement No. 143
will have a significant impact on its financial statements.
7
Note 4. Income per Share
Net income per common share has been computed as follows:
Nine Months Ended Three Months Ended
-----------------------------------------------------
September 30, September 30,
2002 2001 2002 2001
-----------------------------------------------------
Net Income .............................. $12,932,000 $11,776,000 $ 4,479,000 $ 4,044,000
=====================================================
Shares:
Weighted average common shares
outstanding ......................... 10,900,115 10,953,118 10,486,735 10,916,747
Dilutive effect of outstanding options,
as determined by the application of
the treasury stock method ........... 79,774 207,708 104,852 203,761
-----------------------------------------------------
Weighted average common shares
outstanding, as adjusted .............. 10,979,889 11,160,826 10,591,587 11,120,508
=====================================================
Basic earnings per share ................ $ 1.19 $ 1.08 $ 0.43 $ 0.37
=====================================================
Diluted earnings per share .............. $ 1.18 $ 1.06 $ 0.42 $ 0.36
=====================================================
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Condition
Assets and Liabilities
Total assets decreased $55.922 million, or 4.9%, to $1.096 billion at September
30, 2002 compared to $1.152 billion at December 31, 2001. Decreases in cash and
due from banks, investments available-for-sale, mortgage loans held for sale,
federal funds sold and interest earning deposits, accrued interest receivable,
premises and equipment and investments held-to-maturity were partially offset by
increases in loans, non-marketable equity securities and other assets.
Cash and due from banks decreased $36.653 million, or 41.7%, to $51.242 million
at September 30, 2002 compared to $87.895 million at December 31, 2001, due to a
smaller dollar amount of deposit items in process of collection at September 30,
2002 compared to December 31, 2001.
Federal funds sold and interest earning deposits decreased $3.405 million, or
45.5%, to $4.079 million at September 30, 2002 compared to $7.484 million at
December 31, 2001. Federal funds sold and interest earning deposits fluctuate
with loan demand and deposit volume.
Total investments in debt and equity securities decreased $14.261 million, or
4.3%, to $321.161 million at September 30, 2002 compared to $335.422 million at
December 31, 2001. Investments in securities available-for-sale decreased
$15.730 million, or 5.9%, and investments in debt and equity securities
held-to-maturity decreased $0.139 million, or 0.2%, at September 30, 2002
compared to December 31, 2001. Somewhat offsetting these decreases was an
increase in non-marketable equity securities of $1.608 million, or 31.5%, for
the same period. Investments fluctuate with loan demand and deposit volume.
Mortgage loans held for sale decreased $5.081 million, or 57.9%, to $3.694
million at September 30, 2002 compared to $8.775 million at December 31, 2001.
This decrease was mainly attributable to faster loan processing time by the
Company's secondary market investors.
Loans, net of allowance for loan losses, increased $4.016 million, or 0.6%, to
$677.077 million at September 30, 2002 from $673.061 million at December 31,
2001. An increase in real estate loans of $36.751 million, or 11.6%, was
partially offset by decreases in installment and consumer loans of $18.296
million, or 15.3%, and commercial, financial and agricultural loans of $14.208
million, or 5.8%, at September 30, 2002 compared to December 31, 2001.
Premises and equipment decreased $0.448 million, or 2.3%, from $19.259 million
at December 31, 2001 to $18.811 million at September 30, 2002. The decrease was
caused by depreciation expense of $1.969 million and disposals of $0.010 million
offset by purchases of $1.531 million.
Other assets increased $0.635 million, or 5.9%, from $10.725 million at December
31, 2002 to $11.360 million at September 30, 2002.
8
Total liabilities decreased $52.097 million, or 5.1%, to $963.421 million at
September 30, 2002 from $1.016 billion at December 31, 2001. Decreases in total
deposits, federal funds purchased, repurchase agreements and notes payable,
Federal Home Loan Bank advances and other borrowings and accrued interest
payable was slightly offset by an increase in other liabilities.
Total deposits decreased $20.988 million, or 2.4%, to $863.121 million at
September 30, 2002 from $884.109 million at December 31, 2001. Decreases in
deposits included $30.025 million, or 27.0%, in interest bearing demand
deposits, $21.109 million, or 15.8%, in non-interest bearing demand deposits and
$14.396 million, or 10.3%, in time deposits $100,000 and over. Somewhat
offsetting these decreases were increases of $44.461 million, or 16.6%, in
savings deposits and $0.081 million, or 0.03%, in other time deposits. The
decrease in time deposits $100,000 and over included the maturity of a
short-term $25.6 million deposit at the beginning of 2002. Despite the decrease
from year-end, total deposits were $26.572 million, or 3.2%, higher than the
September 30, 2001 balance of $836.549 million. Much of the shift in deposit
volume from both non-interest bearing deposits and interest bearing demand
deposits into savings deposits was the result of reclassifying additional
accounts identified as non-transactional (exhibiting stable balance portions)
into the savings category. Current regulations allow this reclassification in
order to reduce the balances required to be held at the Federal Reserve Bank in
a non-interest bearing reserve account.
Federal funds purchased, repurchase agreements and notes payable decreased
$26.641 million, or 31.3%, to $58.566 million at September 30, 2002 compared to
$85.207 million at December 31, 2001. Included in this change were decreases of
$31.365 million in repurchase agreements and $1.201 million in notes payable
offset somewhat by an increase of $5.925 million in federal funds purchased.
Federal Home Loan Bank advances and other borrowings decreased $5.072 million,
or 14.5%, to $29.823 million at September 30, 2002 compared to $34.895 million
at December 31, 2001.
Other liabilities increased $1.360 million, or 17.2%, to $9.277 million at
September 30, 2002 from $7.917 million at December 31, 2001.
Investment Securities
The carrying value of investments in debt and equity securities was as follows
for September 30, 2002 and December 31, 2001:
Carrying Value of Securities
(in thousands)
September 30, December 31,
---------------------------
Available-for-sale:
U.S. Treasury ................................ $ 3,583 $ 8,577
Federal agencies ............................. 187,411 191,325
Mortgage-backed securities ................... 38,123 28,279
State and municipal .......................... 16,887 15,642
Corporate and other obligations .............. 1,011 3,099
Marketable equity securities ................. 3,751 19,574
-----------------------
Total available-for-sale ............... $250,766 $266,496
=======================
Held-to-maturity:
Federal agencies ............................. $ 1,750 $ 1,750
Mortgage-backed securities ................... 21,012 19,842
State and municipal .......................... 40,917 42,226
-----------------------
Total held-to-maturity ................. $ 63,679 $ 63,818
=======================
Non-marketable equity securities:
FHLB and FRB stock1 .......................... $ 3,898 $ 3,766
Other equity investments ..................... 2,818 1,342
------------------------
Total .................................. $ 6,716 $ 5,108
=======================
Total investment securities ............ $321,161 $335,422
=======================
1 FHLB and FRB are commonly used acronyms for Federal Home Loan Bank and
Federal Reserve Bank, respectively.
9
The following table shows the maturities and weighted-average yields of
investment securities at September 30, 2002. All securities are shown at their
contractual maturity.
Maturities and Weighted Average Yields of Debt Securities
(dollars in thousands)
--------------------------------------------------------------------------------------------------------------------------------
September 30, 2002
--------------------------------------------------------------------------------------------------------------------------------
1 year 1 to 5 5 to 10 Over 10
or less years years years Total
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
--------------------------------------------------------------------------------------------------------------------------------
Securities available-
for-sale
U.S. Treasury ................. $ 1,526 5.74% $ 2,057 3.03% $ -- -- $ -- -- $ 3,583 4.18%
Federal agencies .............. $ 67,783 4.78% $117,525 4.52% $ 2,103 6.46% $ -- -- $187,411 4.63%
Mortgage-backed ............... $ 11,621 3.75% $ 12,578 5.37% $ 8,995 6.53% $ 4,929 6.64% $ 38,123 5.31%
securities1
State and municipal ........... $ 759 5.85% $ 8,167 4.53% $ 5,682 4.98% $ 2,279 5.25% $ 16,887 4.84%
Other securities .............. $ 1,011 4.26% $ -- -- $ -- -- $ -- -- $ 1,011 4.26%
Marketable equity
securities .................. $ -- - $ -- -- $ -- -- $ 3,751 -- $ 3,751 --
--------------------------------------------------------------------------------------------
Total .................. $ 82,700 $140,327 $ 16,780 $10,959 $250,766
--------------------------------------------------------------------------------------------
Average Yield ................... 4.66% 4.57% 6.00% 6.20% 4.74%
=============================================================================================
Securities held-
to-maturity
Federal agencies .............. $ 1,750 6.03 $ -- -- $ -- -- $ -- -- $ 1,750 6.03%
Mortgage-backed
securities1 ................. $ 2,485 5.33% $ 7,748 5.13% $ 331 5.27% $ 10,448 5.88% $ 21,012 5.53%
State and municipal ........... $ 6,739 4.07% $ 28,595 4.15% $ 5,583 4.75% $ -- -- $ 40,917 4.22%
--------------------------------------------------------------------------------------------
Total ................... $ 10,974 $ 36,343 $ 5,914 $ 10,448 $ 63,679
============================================================================================
Average Yield ................... 4.67% 4.36% 4.78% 5.88% 4.70%
============================================================================================
Non-marketable equity securities2
FHLB and FRB stock ............ $ -- -- $ -- -- $ -- -- $ -- -- $ 3,898 --
Other equity investments ...... $ -- -- $ -- -- $ -- -- $ -- -- $ 2,818 --
--------------------------------------------------------------------------------------------
Total ................... $ -- -- $ -- -- $ -- -- $ -- -- $ 6,716 --
============================================================================================
1 Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties and certain securities require principal
repayments prior to maturity.
2 Due to the nature of these securities, they do not have a stated maturity
date or rate.
Loans
The following tables present the amounts and percentages of loans for September
30, 2002 and December 31, 2001 according to the categories of commercial,
financial and agricultural; real estate; and installment and consumer loans.
Amount of Loans Outstanding
(dollars in thousands)
---------------------------------------
September 30, 2002 December 31, 2001
------------------ -------------------
Amount Percentage Amount Percentage
---------------------------------------
Commercial, financial and agricultural $231,834 33.77% $246,042 36.06%
Real estate .......................... 353,444 51.48% 316,693 46.41%
Installment and consumer1 ............ 101,289 14.75% 119,585 17.53%
---------------------------------------
Total loans .................. $686,567 100.00% $682,320 100.00%
=======================================
1 Net of unearned discount
10
The balance of loans outstanding as of September 30, 2002 by maturity is shown
in the following table:
Maturity of Loans Outstanding
(dollars in thousands)
September 30, 2002
--------------------------------------------
1 year 1 to 5 Over 5
or less years years Total
--------------------------------------------
Commercial, financial and agricultural $112,433 $ 97,207 $ 22,194 $ 231,834
Real estate .......................... 47,069 137,142 169,233 353,444
Installment and consumer1 ............ 33,941 59,577 7,771 101,289
--------------------------------------------
Total ........................ $193,443 $293,926 $199,198 $686,567
============================================
Percentage of total loans outstanding 28.18% 42.81% 29.01% 100.00%
============================================
1 Net of unearned discount
Capital
Total shareholders' equity decreased $3.825 million from December 31, 2001 to
September 30, 2002. Treasury stock transactions were $15.003 million, primarily
due to the completion of the $16.556 million tender offer during the second
quarter of 2002, offset partially by the exercise of employee stock options.
Stock options exercised prior to the completion of the tender offering were
fulfilled using existing treasury stock, if available, and through the issuance
of new shares. The change in shareholders' equity is summarized as follows:
(in thousands)
--------------
Shareholders' equity, December 31, 2001 ..................... $ 135,993
Net income .................................................. 12,932
Issuance of new shares of common stock, net ................. 1,222
Treasury stock transactions, net ............................ (15,003)
Stock appreciation rights ................................... (9)
Cash dividends declared ..................................... (4,182)
Other comprehensive income .................................. 1,215
---------
Shareholders' equity, September 30, 2002 .................... $ 132,168
=========
On September 17, 2002, the board of directors of the Company declared a
quarterly cash dividend of $0.13 per share of the Company's common stock. The
dividend of $1.361 million was paid on October 18, 2002, to holders of record on
October 7, 2002. In April 2002, the Company commenced a tender offer to acquire
up to 1,200,000 of its shares of common stock at a price of $23.00 per share.
The tender offer was completed on June 7, 2002 with 711,832 shares, representing
approximately 6.3% of the total shares outstanding, repurchased at a cost,
including expenses, of $16.556 million.
The Company and its subsidiary banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's and its subsidiary banks' financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, banks must meet specific guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Company's and its
subsidiary banks' capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and its subsidiary banks to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier I capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of September
30, 2002, that the Company and its subsidiary banks exceeded all capital
adequacy requirements to which they are subject.
11
As of September 30, 2002, the most recent notifications from primary regulatory
agencies categorized all the Company's subsidiary banks as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, banks must maintain minimum total capital to risk-weighted
assets, Tier I capital to risk-weighted assets, and Tier I capital to average
assets ratios as set forth in the table. There are no conditions or events since
that notification that management believes have changed any of the Company's
subsidiary banks' categories.
The Company's and the Banks' actual capital amounts and ratios are presented in
the following table (in thousands):
To be well
For capital capitalized under
adequacy prompt corrective
Actual purposes: action provisions:
-----------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-----------------------------------------------------
As of September 30, 2002:
Total capital
(to risk-weighted assets)
Consolidated ................. $136,370 17.8% $ 61,432 8.0% N/A
BankIllinois ................. $ 73,894 15.7% $ 37,645 8.0% $ 47,056 10.0%
First National Bank of Decatur $ 47,686 16.6% $ 22,990 8.0% $ 28,738 10.0%
Tier I capital
(to risk-weighted assets)
Consolidated ................. $126,796 16.5% $ 30,716 4.0% N/A
BankIllinois ................. $ 68,037 14.5% $ 18,822 4.0% $ 28,234 6.0%
First National Bank of Decatur $ 44,092 15.3% $ 11,495 4.0% $ 17,243 6.0%
Tier I capital
(to average assets)
Consolidated ................. $126,796 11.6% $ 43,581 4.0% N/A
BankIllinois ................. $ 68,037 10.5% $ 26,021 4.0% $ 32,526 5.0%
First National Bank of Decatur $ 44,092 10.1% $ 17,420 4.0% $ 21,775 5.0%
Interest Rate Sensitivity
The concept of interest rate sensitivity attempts to gauge exposure of the
Company's net interest income to adverse changes in market driven interest rates
by measuring the amount of interest-sensitive assets and interest-sensitive
liabilities maturing or subject to repricing within a specified time period.
Liquidity represents the ability of the Company to meet the day-to-day demands
of deposit customers balanced by its investments of these deposits. The Company
must also be prepared to fulfill the needs of credit customers for loans with
various types of maturities and other financing arrangements. The Company
monitors its interest rate sensitivity and liquidity through the use of static
gap reports which measure the difference between assets and liabilities maturing
or repricing within specified time periods as well as financial
forecasting/budgeting/reporting software packages.
12
The following table presents the Company's interest rate sensitivity at various
intervals at September 30, 2002:
Rate Sensitivity of Earning Assets and Interest Bearing Liabilities
(dollars in thousands)
-------------------------------------------------------------------------------
1-30 31-90 91-180 181-365 Over
Days Days Days Days 1 year Total
-------------------------------------------------------------------------------
Interest earning assets:
Federal funds sold and
interest earning deposits ............ $ 4,079 $ -- $ -- $ -- $ -- $ 4,079
Debt and equity securities 1 ........... 18,603 22,816 27,726 32,654 219,362 321,161
Loans 2 ................................ 196,419 21,476 28,564 53,694 390,108 690,261
-------------------------------------------------------------------------------
Total earning assets ............. $ 219,101 $ 44,292 $ 56,290 $ 86,348 $ 609,470 $1,015,501
-------------------------------------------------------------------------------
Interest bearing liabilities:
Savings and interest bearing
demand deposits 3 .................... $ 38,727 $ 1,348 $ 2,022 $ 4,050 $ 153,879 $ 200,026
Money market savings
deposits ............................. 150,022 -- -- -- -- 150,022
Time deposits .......................... 36,539 39,210 59,190 80,969 141,401 357,309
Federal funds purchased,
repurchase agreements,
and notes payable .................... 55,660 126 934 1,746 100 58,566
FHLB advances and
other borrowings ..................... 2,000 10,000 10,138 -- 7,685 29,823
-------------------------------------------------------------------------------
Total interest bearing liabilities $ 282,948 $ 50,684 $ 72,284 $ 86,765 $ 303,065 $ 795,746
-------------------------------------------------------------------------------
Net asset (liability) funding gap (63,847) (6,392) (15,994) (417) 306,405 219,755
-------------------------------------------------------------------------------
Repricing gap ............................ 0.77 0.87 0.78 1.00 2.01 1.28
Cumulative repricing gap ................. 0.77 0.79 0.79 0.82 1.28 1.28
===============================================================================
1 Debt and equity securities include securities available-for-sale,
securities held-to-maturity, and non-marketable equity securities.
2 Loans are gross and include mortgage loans held-for-sale.
3 The total of savings and interest-bearing demand deposits does not include
$43.467 million of non-transactional accounts which are savings accounts
that are non-interest bearing.
Included in the 1-30 day category of savings and interest-bearing demand
deposits are non-core deposits plus a percentage, based upon industry-accepted
assumptions and Company analysis, of the core deposits. "Core deposits" are the
lowest average balance of the prior twelve months for each product type included
in this category. "Non-core deposits" are the difference between the current
balance and core deposits. The time frames include a percentage, based upon
industry-accepted assumptions and Company analysis, of the core deposits, as
follows:
1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year
-------------------------------------------------------------
Savings and interest-bearing
demand deposits 0.45% 0.85% 1.25% 2.45% 95.00%
At September 30, 2002, the Company was liability-sensitive due to the levels of
savings and interest bearing demand deposits, short-term time deposits, and
short-term borrowings. As such, the effect of a decrease in the interest rate
for all interest earning assets and interest bearing liabilities of 100 basis
points would increase annualized net interest income by approximately $0.638
million in the 1-30 days category and $0.702 million in the 1-90 days category
assuming no management intervention. An increase in interest rates would have
the opposite effect for the same time periods.
In addition to managing interest rate sensitivity and liquidity through the use
of gap reports, the Company is able to borrow funds on a temporary basis from
the Federal Reserve Bank and correspondent banks to meet short-term
requirements. Additionally, the Company can borrow approximately $44 million
from the Federal Home Bank on a secured basis.
13
The Company uses financial forecasting/budgeting/reporting software packages to
perform interest rate sensitivity analysis for all product categories. The
Company's primary focus of its analysis is on the effect of interest rate
increases and decreases on net interest income. Management believes that this
analysis reflects the potential effects on current earnings of interest rate
changes. Call criteria and prepayment assumptions are taken into consideration
for investments in debt and equity securities. All of the Company's financial
instruments are analyzed by a software database which includes each of the
different product categories which are tied to key rates such as prime, Treasury
Bills, or the federal funds rate. The relationships of each of the different
products to the key rate that the product is tied to is proportional. The
software reprices the products based on current offering rates. The software
performs interest rate sensitivity analysis by performing rate shocks of plus or
minus 200 basis points in 100 basis point increments.
The following table shows projected results at September 30, 2002 and December
31, 2001 of the impact on net interest income from an immediate change in
interest rates. The results are shown as a percentage change in net interest
income over the next twelve months.
Basis Point Change
---------------------------------------
+200 +100 -100 -200
September 30, 2002 5.5% 2.7% (2.7%) (6.1%)
December 31, 2001 4.2% 2.1% (2.1%) (3.6%)
The foregoing computations are based on numerous assumptions, including relative
levels of market interest rates, prepayments and deposit mix. The computed
estimates should not be relied upon as a projection of actual results. Despite
the limitations on preciseness inherent in these computations, management
believes that the information provided is reasonably indicative of the effect of
changes in interest rate levels on the net earning capacity of the Company's
current mix of interest earning assets and interest bearing liabilities.
Management continues to use the results of these computations, along with the
results of its computer model projections, in order to maximize current earnings
while positioning the Company to minimize the effect of a prolonged shift in
interest rates that would adversely affect future results of operations.
At the present time, the most significant market risk affecting the Company is
interest rate risk. Other market risks such as foreign currency exchange risk
and commodity price risk do not occur in the normal business of the Company. The
Company also is not currently using trading activities or derivative instruments
to control interest rate risk.
Liquidity and Cash Flows
The Company was able to meet liquidity needs during the first nine months of
2002. A review of the consolidated statements of cash flows included in the
accompanying financial statements shows that the Company's cash and cash
equivalents decreased $40.058 million from December 31, 2001 to September 30,
2002. This decrease came from cash used in financing activities offset somewhat
by cash provided by operating and investing activities.
There were differences in the sources and uses of cash during the first nine
months of 2002 compared to the first nine months of 2001. More cash was used in
financing activities during the first nine months of 2002 compared to the first
nine months of 2001. This was mainly due to a decrease in federal funds
purchased, repurchase agreements and notes payable, an increase in purchases of
treasury stock, primarily due to the tender offer, and an increase in the net
use of funds on Federal Home Loan Bank and other borrowings due to payments
exceeding advances during the first nine months of 2002 compared to the same
period in 2001. More cash was provided by operating activities during the first
nine months of 2002 compared to the same period of 2001, primarily from net
loans originated for sale because proceeds from sales were higher than
originated loans during the first nine months of 2002, whereas during the first
nine months of 2001 cash was used by net loans originated for sale because
originated loans were higher than proceeds from sales. More cash was provided by
investing activities during the first nine months of 2002 compared to the first
nine months of 2001. This was due to a smaller amount of loan growth in the
first nine months of 2002 compared to the same period in 2001 and due to changes
in the Company's investment portfolio. During the first nine months of 2002, net
cash provided by investing activities involving the Company's investment
portfolio was $16.015 million compared to $12.803 million cash used by investing
activities during the same period in 2001.
14
Provision and Allowance for Loan Losses
The provision for loan losses is based on management's evaluation of the loan
portfolio in light of national and local economic conditions, changes in the
composition and volume of the loan portfolio, changes in the volume of past due
and nonaccrual loans, and other relevant factors. The allowance for loan losses,
which is reported as a deduction from loans, is available for loan charge-offs.
The allowance is increased by the provision charged to expense and is reduced by
loan charge-offs net of loan recoveries. The allowance is allocated between the
commercial, residential real estate and consumer loan portfolios according to
the historical losses experienced in each of these portfolios as well as the
current level of watch list loans and nonperforming loans for each portfolio.
The unallocated portion of the allowance is determined by economic conditions
and the other factors mentioned above. The balance of the allowance for loan
losses was $9.490 million at September 30, 2002 compared to $9.259 million at
December 31, 2001, as net charge-offs were $0.759 million and provisions totaled
$0.990 million during the first nine months of 2002. The allowance for loan
losses as a percentage of gross loans, including loans held-for-sale, was 1.37%
at September 30, 2002, a slight increase over the December 31, 2001 percentage
of 1.34%. Gross loans, including loans held-for-sale, remained stable with
$690.261 million at September 30, 2002 compared to $691.095 million at December
31, 2001.
The allowance for loan losses as a percentage of non-performing loans was 404.5%
at September 30, 2002 compared to 181.0% at December 31, 2001. Non-performing
loans decreased from $5.115 million at December 31, 2001, to $2.346 million at
September 30, 2002. The $2.769 million decrease in non-performing loans during
the first nine months resulted from a $1.857 million decrease in nonaccrual
loans and a $0.912 million decrease in loans over 90 days past due. The decrease
in nonaccrual loans was due primarily to the successful resolution and payoff of
a $1.727 million agricultural credit. The decrease in 90 day delinquencies was
due largely to a reduction in residential mortgage loans over 90 days past due.
Management believes that nonperforming and potential problem loans are
appropriately identified and monitored based on the extensive loan analysis
performed by the credit administration department, the internal loan committees
and the board of directors. Historically, there has not been a significant
amount of loans charged off which had not been previously identified as problem
loans by the credit administration department or the loan committees.
Along with other financial institutions, management shares a concern for the
outlook of the economy during the remainder of 2002. A slowdown in economic
activity beginning in 2001 severely impacted several major industries as well as
the economy as a whole. Even though there are indications of emerging strength,
it is not certain that this strength is sustainable. In addition, consumer
confidence may be negatively impacted by the decline in equity prices. These
events could still adversely affect cash flows for both commercial and
individual borrowers, as a result of which, the Company could experience
increases in problem assets, delinquencies and losses on loans.
15
The following table summarizes changes in the allowance for loan
losses by loan categories for each period and additions to the allowance for
loan losses which have been charged to operations.
Allowance for Loan Losses
(dollars in thousands)
September 30,
---------------------
2002 2001
---------------------
Allowance for loan losses at
beginning of year ................................ $ 9,259 $ 8,879
---------------------
Charge-offs during period:
Commercial, financial and agricultural ........... $ (96) $ (302)
Real estate ...................................... (32) --
Installment and consumer ......................... (969) (859)
---------------------
Total ...................................... $(1,097) $(1,161)
---------------------
Recoveries of loans previously charged off:
Commercial, financial and agricultural ........... $ 187 $ 135
Residential real estate .......................... 28 37
Installment and consumer ......................... 123 129
---------------------
Total ...................................... $ 338 $ 301
---------------------
Net (charge-offs) recoveries ............... $ (759) $ (860)
Provision for loan losses .......................... 990 845
---------------------
Allowance for loan losses at end of quarter ........ $ 9,490 $ 8,864
=====================
Ratio of net (charge-offs) recoveries to
average net loans ................................ (0.11)% (0.13)%
=====================
The following table shows the allocation of the allowance for loan losses
allocated to each category.
Allocation of the Allowance for Loan Losses
September 30, December 31,
2002 2001
---------------------------
Allocated:
Commercial, financial and agricultural ......... $5,737 $5,487
Residential real estate ........................ 397 419
Installment and consumer ....................... 1,847 2,000
--------------------
Total allocated allowance ................. $7,981 $7,906
Unallocated allowances ............................ 1,509 1,353
-------------------
Total ............................................. $9,490 $9,259
===================
The following table presents the aggregate amount of loans considered to be
nonperforming for the periods indicated. Nonperforming loans include loans
accounted for on a nonaccrual basis, accruing loans contractually past due 90
days or more as to interest or principal payments and loans which are troubled
debt restructurings as defined in Statement of Financial Accounting Standards
No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings."
Nonaccrual, Past Due and Restructured Loans (dollars in thousands)
September 30, 2002 December 31, 2001
-----------------------------------------
Nonaccrual loans1 .................. $1,484 $3,341
Loans past due 90 days or more ..... $ 862 $1,774
Restructured loans2 ................ $ 47 $ 67
1 Includes $658,000 at September 30, 2002 and $3.216 million at December 31,
2001 of real estate and consumer loans which management does not consider
impaired as defined by the Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan" (SFAS 114).
2 Management does not consider restructured loans of $47,000 and $67,000 at
September 30, 2002 and December 31, 2001, respectively, to be
nonperforming.
16
Other Nonperforming Assets (dollars in thousands)
September 30, 2002 December 31, 2001
--------------------------------------
Other real estate owned ........... $ 50 $ --
Nonperforming other assets ........ $ 239 $ 153
Results of Operations
Results of Operations For the Nine Months Ended September 30, 2002
Net income for the first nine months of 2002 was $12.932 million, a $1.156
million, or 9.8%, increase from $11.776 million for the same period in 2001.
Basic earnings per share increased $0.11, or 10.2%, to $1.19 in the first nine
months of 2002 from $1.08 in the same period of 2001. Diluted earnings per share
increased $0.12, or 11.3%, to $1.18 in the first nine months of 2002 from $1.06
during the same period in 2001.
Operating earnings for the nine months ended September 30, 2002 were $13.296
million compared to $11.991 million for the same period in 2001, an increase of
$1.305 million, or 10.9%. Basic operating earnings per share increased 11.9% to
$1.22 in the first nine months of 2002 from $1.09 in the same period of 2001.
Diluted operating earnings per share for the first nine months of 2002 increased
13.1%, or $0.14, to $1.21 from $1.07 in the same period in 2001. The difference
between operating and net earnings was due to merger and restructuring related
expenses, net of tax, of $364,000 during the first nine months of 2002 compared
to $215,000 during the same period in 2001. The 2002 merger and restructuring
related expenses consisted of $529,000 of termination of employment contracts,
$40,000 of professional fees and $38,000 of data processing expense, offset by
$243,000 of tax benefit. The 2001 merger and restructuring related expenses
consisted of $70,000 of data processing expense and $256,000 of termination of
employment contracts, offset by $111,000 of tax benefit.
17
The following schedule "Consolidated Average Balance Sheet and Interest Rates"
provides details of average balances, interest income or interest expense, and
the average rates for the Company's major asset and liability categories.
Consolidated Average Balance Sheet and Interest Rates
(dollars in thousands)
Nine Months Ended September 30,
--------------------------------
2002 2001
-------------------------------- ----------------------------------
Average Average
Balance Interest Rate Balance Interest Rate
-----------------------------------------------------------------------
Assets
Taxable investment securities1 ......... $ 264,543 $ 9,632 4.87% $ 245,250 $ 10,513 5.73%
Tax-exempt investment securities1 (TE) . 55,083 2,743 6.66% 51,756 2,626 6.78%
Federal funds sold and interest earning
deposits2 ............................ 20,794 302 1.94% 42,728 1,527 4.78%
Loans3,4 (TE) .......................... 676,320 36,396 7.20% 665,531 42,198 8.48%
-----------------------------------------------------------------------
Total interest earning assets
and interest income (TE) ....... $1,016,740 $ 49,073 6.45% $1,005,265 $ 56,864 7.56%
-----------------------------------------------------------------------
Cash and due from banks ................ $ 46,970 $ 50,237
Premises and equipment ................. 19,022 20,537
Other assets ........................... 18,599 20,179
-----------------------------------------------------------------------
Total assets ................... $1,101,331 $1,096,218
=======================================================================
Liabilities and Shareholders' Equity
Interest bearing demand deposits ....... $ 93,182 $ 788 1.13% $ 107,482 $ 1,804 2.24%
Savings ................................ 257,588 2,827 1.47% 225,261 5,629 3.34%
Time deposits .......................... 349,112 10,788 4.13% 362,054 15,428 5.70%
Federal funds purchased, repurchase
agreements, and notes payable ........ 68,859 919 1.78% 73,757 2,101 3.81%
FHLB advances and other borrowings ..... 34,555 1,444 5.59% 40,292 1,768 5.87%
-----------------------------------------------------------------------
Total interest bearing
liabilities and interest expense $ 803,296 $ 16,766 2.79% $ 808,846 $ 26,730 4.42%
-----------------------------------------------------------------------
Noninterest bearing demand deposits .... $ 96,384 $ 102,326
Noninterest bearing savings deposits ... 53,948 40,806
Other liabilities ...................... 10,778 14,436
-----------------------------------------------------------------------
Total liabilities .............. $ 964,406 $ 966,414
Shareholders' equity ................... 136,925 129,804
-----------------------------------------------------------------------
Total liabilities and
shareholders' equity ........... $1,101,331 $1,096,218
=======================================================================
Interest spread (average rate earned
minus average rate paid) (TE) ........ 3.66% 3.14%
=======================================================================
Net interest income (TE) ............... $ 32,307 $ 30,134
=======================================================================
Net yield on interest
earnings assets (TE) ................. 4.25% 4.01%
=======================================================================
See next page for Notes 1-4.
Notes to Consolidated Average Balance Sheet and Interest Rate Tables:
1 Investments in debt securities are included at carrying value.
2 Federal funds sold and interest earning deposits include approximately
$49,000 and $93,000 in 2002 and 2001, respectively, of interest income from
third party processing of cashier checks.
3 Loans are net of allowance for loan losses and include mortgage loans held
for sale. Nonaccrual loans are included in the total.
4 Loan fees of approximately $742,000 and $722,000 in 2002 and 2001,
respectively, are included in total loan income.
18
Net interest income, the most significant component of the Company's earnings,
is the difference between interest received or accrued on the Company's earning
assets - primarily loans and investments - and interest paid or accrued on
deposits and borrowings. In order to compare the interest generated from
different types of earning assets, the interest income on certain tax-exempt
investment securities and loans is increased for analysis purposes to reflect
the income tax savings provided by these tax-exempt assets. The adjustment to
interest income for tax-exempt investment securities and loans was calculated
based on the federal income tax statutory rate of 35% at September 30, 2002,
compared to 34% at September 30, 2001. The following table presents, on a tax
equivalent (TE) basis, an analysis of changes in net interest income resulting
from changes in average volumes of earning assets and interest bearing
liabilities and average rates earned and paid. The change in interest due to the
combined rate/volume variance has been allocated to rate and volume changes in
proportion to the absolute dollar amounts of change in each.
Analysis of Volume and Rate Changes
(in thousands)
Nine Months Ended September 30, 2002
Increase
(Decrease)
from
Previous Due to Due to
Year Volume Rate
-----------------------------
Interest Income
Taxable investment securities .................. $ (881) $ 1,151 $(2,031)
Tax-exempt investment securities (TE) .......... 117 190 (74)
Federal funds sold and interest earning deposits (1,225) (568) (657)
Loans (TE) ..................................... (5,802) 1,091 (6,893)
-----------------------------
Total interest income (TE) ............... $(7,791) $ 1,864 $(9,655)
-----------------------------
Interest Expense
Interest bearing demand and savings deposits1 .. $(3,818) $ 629 $(4,447)
Time deposits .................................. (4,640) (534) (4,106)
Federal funds purchased,
repurchase agreements and notes payable ...... (1,182) (132) (1,050)
FHLB advances and other borrowings ............. (324) (243) (81)
-----------------------------
Total interest expense ................... $(9,964) $ (280) $(9,684)
-----------------------------
Net Interest Income (TE) ......................... $ 2,173 $ 2,144 $ 29
=============================
1 Due to current regulatory issues, the Company is allowed to reclassify
certain non-transactional, or stable, demand deposits to savings deposits.
Because of these reclassifications, interest bearing demand and savings
deposits are included in the same line for comparability.
Net interest income on a tax equivalent basis was $2.173 million, or 7.2%,
higher for the first nine months of 2002 compared to 2001. Total tax-equivalent
interest income was $7.791 million, or 13.7%, lower in 2002 compared to 2001,
and interest expense decreased $9.964 million, or 37.3%. The decrease in
interest income was due to a decrease in rate offset somewhat by an increase in
average earning assets. The decrease in interest expense was due primarily to a
decrease in rate.
The decrease in total interest income was mainly due to a decrease in interest
income from loans as well as federal funds sold and interest earning deposits,
and taxable investment securities, offset slightly by an increase in income from
tax-exempt investment securities. The decreases in interest income from loans
and taxable investment securities were primarily due to decreases in rate offset
somewhat by increases in average balances outstanding during the first nine
months of 2002 compared to the first nine months of 2001. The decrease in
federal funds sold and interest earning deposits resulted from a decrease in
rates as well as a decrease in average balances outstanding. The increase in
tax-exempt investment securities was due to an increase in average balances
outstanding offset somewhat by a decrease in rates for the first nine months of
2002 compared to the first nine months of 2001.
19
The decrease in total interest expense was due to decreases in interest expense
from all categories of interest bearing liabilities. Decreases in interest
expense on time deposits, and federal funds purchased, repurchase agreements and
notes payable during the first nine months of 2002 compared to the first nine
months of 2001 were due primarily to decreases in rate, but also to decreases in
average balances. Interest expense on interest bearing demand and savings
deposits decreased during the first nine months of 2002 compared to the first
nine months of 2001 due to a decrease in rates, offset somewhat by an increase
in average balances. Interest expense on FHLB advances and other borrowings
decreased during the first nine months of 2002 compared to the same period in
2001 due to both lower average balances and lower rates.
The provision for loan losses recorded was $990,000 during the first nine months
of 2002. This was $145,000, or 17.2%, higher than the $845,000 recorded during
the first nine months of 2001. The provision during both periods was based on
management's analysis of the loan portfolio, as discussed in the provision and
allowance for loan losses section above.
Totalnon-interest income increased $1.381 million, or 10.9%, during the first
nine months of 2002 compared to the first nine months of 2001. Included in this
increase was an increase of $613,000, or 15.3%, from trust and brokerage fees. A
uniform trust fee schedule was adopted throughout the Company resulting in the
recognition of increased fees as well as an increase in estate fee income.
Remittance processing income increased $450,000, or 8.8%, during the first nine
months of 2002 compared to the first nine months of 2001. This increase was
primarily due to renegotiated contracts, which included restructured pricing for
some customers. Income on gains on sales of mortgage loans held-for-sale
increased $283,000, or 57.8%, during the first nine months of 2002 compared to
the same period in 2001. This increase reflected a $19.805 million, or 33.0%,
increase in funded mortgage loans held-for-sale during the first nine months of
2002 compared to the same period in 2001. This increase was reflective of lower
interest rates during the first nine months of 2002. Service charges on deposit
accounts increased $164,000, or 10.3%, during the first nine months of 2002
compared to the first nine months of 2001. Somewhat offsetting these increases
were decreases of $74,000, or 24.5%, in securities transactions and $55,000, or
4.7%, in other non-interest income. The decrease in other noninterest income
included a write-down of approximately $300,000 in the value of mortgage
servicing rights as a result of the sharp rise in prepayment speeds.
Total non-interest expense increased $1.361 million, or 5.7%, during the first
nine months of 2002 compared to the same period in 2001. Of this increase,
salaries and employee benefits increased $1.313 million, or 10.0%, during the
first nine months of 2002 compared to the same period in 2001. Contributing to
the increase in salaries and employee benefits was an increase of $273,000 in
salaries and benefits related to organizational restructuring that resulted in
termination of employment contracts, and an increase of $449,000 in group health
insurance costs. Data processing expense increased $383,000, or 28.4%, in the
first nine months of 2002 compared to the first nine months of 2001.
Contributing to this increase were a computer system conversion at the Company's
Decatur bank late in the first quarter of 2001 from in-house data processing to
third party service bureau data processing, conversion to a new system and a
software upgrade at the Company's remittance processing subsidiary FirsTech,
costs to merge First Trust Bank of Shelbyville and BankIllinois computer
records, as well as to continue development of the Company's internet services
during the first nine months of 2002 compared to the same period in 2001.
Somewhat offsetting these increases was a decrease in equipment expense of
$241,000, or 10.4%, during the first nine months of 2002 compared to the same
period in 2001. This decrease was due, in part, to conversion to third party
service bureau data processing from in-house data processing at the Company's
Decatur bank during the first quarter in 2001. Office supplies decreased
$220,000, or 18.7% during the first nine months of 2002 compared to the first
nine months of 2001. Included in office supplies expense in 2001 were additional
printing and mailing expense to announce a computer system conversion, and
additional supplies purchased as a result of the conversion.
Income tax expense increased $864,000, or 15.8%, during the first nine months of
2002 compared to the first nine months of 2001. The effective tax rate increased
to 32.8% during the first nine months of 2002 from 31.7% during the same period
in 2001. This difference in the effective tax rate was that the 2001 expense was
offset by a state net operating loss carry forward that was fully utilized in
2001.
20
Results of Operations For the Three Months Ended September 30, 2002
Net income for the third quarter of 2002 was $4.479 million, a $435,000, or
10.8%, increase from $4.044 million for the same period in 2001. Basic earnings
per share increased 16.2% to $0.43 in the third quarter of 2002 from $0.37
during the same period in 2001. Diluted earnings per share increased 16.7% to
$0.42 in the third quarter of 2002 from $0.36 in the third quarter of 2001.
Operating income and earnings per share for the third quarter of 2002 and 2001
were the same as net income for those quarters.
The following schedule "Consolidated Average Balance Sheet and Interest Rates"
provides details of average balances, interest income or interest expense, and
the average rates for the Company's major asset and liability categories.
Consolidated Average Balance Sheet and Interest Rates
(dollars in thousands)
Three Months Ended September 30,
2002 2001
--------------------------------- ---------------------------------
Average Average
Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------------
Assets
Taxable investment securities1 ......... $ 257,827 $ 3,177 4.89% $ 251,297 $ 3,349 5.29%
Tax-exempt investment securities1 (TE) . 54,891 906 6.55% 55,522 915 6.54%
Federal funds sold and interest earning
deposits2 ............................ 22,088 106 1.90% 9,970 292 11.62%
Loans3,4 (TE) .......................... 675,502 12,006 7.05% 678,110 13,817 8.08%
--------------------------------------------------------------------
Total interest earning assets
and interest income (TE) ....... $1,010,308 $ 16,195 6.36% $ 994,899 $ 18,373 7.33%
---------------------------------------------------------------------
Cash and due from banks ................ $ 45,600 $ 50,136
Premises and equipment ................. 18,930 20,193
Other assets ........................... 18,279 21,347
---------------------------------------------------------------------
Total assets ................... $1,093,117 $1,086,575
=====================================================================
Liabilities and Shareholders' Equity
Interest bearing demand deposits ....... $ 77,190 $ 205 1.05% $ 103,170 $ 543 2.09%
Savings ................................ 270,914 952 1.39% 231,237 1,699 2.92%
Time deposits .......................... 362,314 3,521 3.86% 357,200 4,847 5.38%
Federal funds purchased, repurchase
agreements, and notes payable ........ 63,319 270 1.69% 78,462 619 3.13%
FHLB advances and other borrowings ..... 32,215 451 5.55% 40,417 597 5.86%
---------------------------------------------------------------------
Total interest bearing
liabilities and interest expense $ 805,952 $ 5,399 2.66% $ 810,486 $ 8,305 4.07%
---------------------------------------------------------------------
Noninterest bearing demand deposits .... $ 81,186 $ 104,466
Noninterest bearing savings deposits ... 64,642 23,575
Other liabilities ...................... 10,900 14,780
---------------------------------------------------------------------
Total liabilities .............. $ 962,680 $ 953,307
Shareholders' equity ................... 130,437 133,268
---------------------------------------------------------------------
Total liabilities and
shareholders' equity ........... $1,093,117 $1,086,575
=====================================================================
Interest spread (average rate earned
minus average rate paid) (TE) ........ 3.70% 3.26%
=====================================================================
Net interest income (TE) ............... $ 10,796 $ 10,068
=====================================================================
Net yield on interest
earnings assets (TE) ................. 4.24% 4.01%
=====================================================================
] See next page for Notes 1 - 4.
Notes to Consolidated Average Balance Sheet and Interest Rate Tables:
1 Investments in debt securities are included at carrying value.
2 Federal funds sold and interest earning deposits include approximately
$16,000 and $23,000 in 2002 and 2001, respectively, of interest income from
third party processing of cashier checks.
3 Loans are net of allowance for loan losses. Nonaccrual loans are included
in the total.
4 Loan fees of approximately $250,000 and $282,000 in 2002 and 2001,
respectively, are included in total loan income.
21
The following table presents, on a tax equivalent basis, an analysis of changes
in net interest income resulting from changes in average volumes of earning
assets and interest bearing liabilities and average rates earned and paid. The
change in interest due to the combined rate/volume variance has been allocated
to rate and volume changes in proportion to the absolute dollar amounts of
change in each.
Analysis of Volume and Rate Changes
(in thousands)
Three Months Ended September 30, 2002
-------------------------------------
Increase
(Decrease)
from
Previous Due to Due to
Year Volume Rate
------------------------------
Interest Income
Taxable investment securities .................. $ (172) $ 469 $ (641)
Tax-exempt investment securities (TE) .......... (9) (19) 10
Federal funds sold and interest earning deposits (186) 1,038 (1,224)
Loans (TE) ..................................... (1,811) (52) (1,759)
-----------------------------
Total interest income (TE) ............... $(2,178) $ 1,436 $(3,614)
-----------------------------
Interest Expense
Interest bearing demand and savings deposits1 .. $(1,085) $ 593 $(1,678)
Time deposits .................................. (1,326) 460 (1,786)
Federal funds purchased,
repurchase agreements and notes payable ...... (349) (103) (246)
FHLB advances and other borrowings ............. (146) (116) (30)
------------------------------
Total interest expense ................... $(2,906) $ 834 $(3,740)
-----------------------------
Net Interest Income (TE) ......................... $ 728 $ 602 $ 126
=============================
1 Due to current regulatory issues, the Company is allowed to reclassify
certain non-transactional, or stable, demand deposits to savings deposits.
Because of these reclassifications, interest bearing demand and savings
deposits are included in the same line for comparability.
Net interest income on a tax equivalent basis was $728,000, or 7.2%, higher for
the third quarter of 2002 compared to the third quarter of 2001. Total
tax-equivalent interest income was $2.178 million, or 11.9%, lower in 2002
compared to 2001, and interest expense decreased $2.906 million, or 35.0%. The
decrease in interest income was due to a decrease in rates offset somewhat by an
increase in average balances. The decrease in interest expense was due to a
decrease in rates offset slightly by an increase in average balances.
The decrease in total interest income was due to decreases in all categories of
interest earning assets. The decrease in interest income from loans was due to a
decrease in both rates and average balances during the third quarter of 2002
compared to the third quarter of 2001. The decrease in income from tax-exempt
securities was due to a decrease in volume, offset somewhat by an increase in
tax equivalized rate. The increase in rate on tax-exempt securities was due to
the increase in the federal income tax statutory rate to 35% during the third
quarter of 2002 from 34% during the same period in 2001. The decreases in
taxable investment securities and federal funds sold and interest earning
deposits was due to decreases in rates, offset somewhat by increases in average
balances.
The decrease in total interest expense was due to decreases in interest expense
in all categories of interest bearing liabilities. Interest expense on federal
funds purchased, repurchase agreements and notes payable and FHLB advances and
other borrowings decreased during the third quarter of 2002 compared to the
third quarter of 2001 due to both decreases in rates and average balances.
Interest expense on interest bearing demand and savings deposits and time
deposits decreased during the third quarter of 2002 compared to the third
quarter of 2001 due to decreases in rates, offset somewhat by increases in
average balances.
22
The provision for loan losses recorded was $330,000 during the third quarter of
2002. This was $95,000, or 40.4%, more than the $235,000 recorded during the
third quarter of 2001. The provision during both periods was based on
management's analysis of the loan portfolio, as discussed in the provision and
allowance for loan losses section above.
Total non-interest income increased $272,000, or 6.3%, during the third quarter
of 2002 compared to the third quarter of 2001. Included in this increase was an
increase of $378,000, or 27.7%, in income from trust and brokerage fees in the
third quarter of 2002 compared to the same quarter in 2001. A uniform trust fee
schedule was adopted throughout the Company resulting in the recognition of
increased fees as well as an increase in estate fee income. Gains on sales of
mortgage loans held-for-sale increased $203,000, or 116.0%, during the third
quarter of 2002 compared to the same period in 2001. This increase reflected a
$13,796,000, or 66.8%, increase in funded mortgage loans held-for-sale during
the third quarter of 2002 compared to the same period in 2001. This increase was
the result of lower interest rates during the third quarter of 2002 compared to
the same period in 2001. Service charges on deposit accounts increased $51,000,
or 9.1%, during the third quarter of 2002 compared to the same period in 2001.
Somewhat offsetting these increases was a decrease of $199,000, or 54.8%, in
other income during the third quarter of 2002 compared to the same period in
2001. This decrease included a write-down of approximately $300,000 in the value
of mortgage servicing rights as a result of the sharp rise in prepayment speeds.
Income from securities transactions decreased $145,000, or 174.7%, during the
third quarter of 2002 compared to the third quarter of 2001. Included in this
decrease was recognition of a net loss on marketable equity securities of
$168,000 in the third quarter of 2002 compared to none in the third quarter of
2001. Income from remittance processing decreased $16,000, or 0.9%, during the
third quarter of 2002 compared to the same period in 2001.
Total non-interest expense increased $253,000, or 3.2%, during the third quarter
of 2002 compared to the same period in 2001. Of this increase, salaries and
employee benefits increased $275,000, or 6.4%, in the third quarter of 2002
compared to the third quarter of 2001. Contributing to the increase in salaries
and employee benefits was a 76.9% increase in group health insurance. Other
categories with increases during the third quarter of 2002 compared to the same
period in 2001 included occupancy expense with an increase of $49,000, or 8.9%,
other noninterest expense with an increase of $17,000, or 1.5%, data processing
with an increase of $6,000, or 1.2%, and service charges from correspondent
banks with an increase of $5,000, or 2.3%. Somewhat offsetting these increases
were decreases of $67,000, or 17.1%, in office supplies expense and $32,000, or
4.3%, in equipment expense during the third quarter of 2002 compared to the same
period in 2001.
Income tax expense increased $226,000, or 11.4%, during the third quarter of
2002 compared to the third quarter of 2001. The effective tax rate increased to
33.0% during the third quarter of 2002 from 32.9% during the same period in
2001.
23
Business Segment Information
The Company currently operates in two industry segments. The primary business
involves providing banking services to central Illinois. BankIllinois and First
National Bank of Decatur offer a full range of financial services to business
and individual customers. These services include demand, savings, time and
individual retirement accounts; commercial, consumer (including automobile loans
and personal lines of credit), agricultural, and real estate lending; safe
deposit and night depository services; farm management; full service trust
departments; discount brokerage services and purchases of installment
obligations from retailers, primarily without recourse. The other industry
segment involves retail payment processing. FirsTech provides the following
services to electric, water and gas utilities, telecommunication companies,
cable television firms and charitable organizations: retail lockbox processing
of payments delivered by mail to the biller; processing of payments delivered by
customers to pay agents such as grocery stores, convenience stores and currency
exchanges; and concentration of payments delivered by the Automated Clearing
House network, money management software such as Quicken and through networks
such as Visa e-Pay and Mastercard RPS. The following is a summary of selected
data for the various business segments:
Banking Remittance
Services Services Company Eliminations Total
-------------------------------------------------------------------------------------------------
September 30, 2002
Total interest income ....... $ 47,963 $ 69 $ 185 $ (119) $ 48,098
Total interest expense ...... 16,869 -- 16 (119) 16,766
Provision for loan losses ... 990 -- -- -- 990
Total non-interest income ... 8,975 5,646 (76) (483) 14,062
Total non-interest expense .. 20,567 3,853 1,217 (483) 25,154
Income before income tax .... 18,512 1,862 (1,124) -- 19,250
Income tax expense .......... 6,021 744 (447) -- 6,318
Net income .................. 12,491 1,118 (677) -- 12,932
Total assets ................ 1,083,664 6,451 134,817 (129,343) 1,095,589
Depreciation and amortization 1,584 383 22 -- 1,989
September 30, 2001
Total interest income ....... $ 55,932 $ 105 $ 89 $ (209) $ 55,917
Total interest expense ...... 26,939 -- -- (209) 26,730
Provision for loan losses ... 845 -- -- -- 845
Total non-interest income ... 7,762 5,398 151 (630) 12,681
Total non-interest expense .. 19,589 3,997 837 (630) 23,793
Income before income tax .... 16,321 1,506 (597) -- 17,230
Income tax expense .......... 5,120 547 (213) -- 5,454
Net income .................. 11,201 959 (384) -- 11,776
Total assets ................ 1,095,240 7,212 140,264 (138,041) 1,104,675
Depreciation and amortization 1,619 369 21 -- 2,009
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
This document (including information incorporated by reference) contains, and
future oral and written statements of the Company and its management may
contain, forward-looking statements, within the meaning of such term in the
Private Securities Litigation Reform Act of 1995, with respect to the financial
condition, results of operations, plans, objectives, future performance and
business of the Company. Forward-looking statements, which may be based upon
beliefs, expectations and assumptions of the Company's management and on
information currently available to management, are generally identifiable by the
use of words such as "believe", "expect", "anticipate", "plan", "intend",
"estimate", "may", "will", "would", "could", "should", or other similar
expressions. Additionally, all statements in this document, including
forward-looking statements, speak only as of the date they are made, and the
Company undertakes no obligation to update any statement in light of new
information or future events.
The Company's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors which could have a material adverse
effect on the operations and future prospects of the Company and its
subsidiaries include, but are not limited to, the following:
o The strength of the United States economy in general and the strength of
the local economies in which the Company conducts its operations which may
be less favorable than expected and may result in, among other things, a
deterioration in the credit quality and value of the Company's assets.
24
o The economic impact of the terrorist attacks that occurred on September
11th, as well as any future threats and attacks, and the response of the
United States to any such threats and attacks.
o The effects of, and changes in, federal, state and local laws, regulations
and policies affecting banking, securities, insurance and monetary and
financial matters.
o The effects of changes in interest rates (including the effects of changes
in the rate of prepayments of the Company's assets) and the policies of the
Board of Governors of the Federal Reserve System.
o The ability of the Company to compete with other financial institutions as
effectively as the Company currently intends due to increase in competitive
pressures in the financial services sector.
o The inability of the Company to obtain new customers and to retain existing
customers.
o The timely development and acceptance of products and services, including
products and services offered through alternative delivery channels such as
the Internet.
o Technological changes implemented by the Company and by other parties,
including third party vendors, which may be more difficult or more
expensive than anticipated or which may have unforeseen consequences to the
Company and its customers.
o The ability of the Company to develop and maintain secure and reliable
electronic systems.
o The ability of the Company to retain key executives and employees and the
difficulty that the Company may experience in replacing key executives and
employees in an effective manner.
o Consumer spending and saving habits which may change in a manner that
affects the Company's business adversely.
o Business combinations and the integration of acquired businesses which may
be more difficult or expensive than expected.
o The costs, effects and outcomes of existing or future litigation.
o Changes in accounting policies and practices, as may be adopted by state
and federal regulatory agencies and the Financial Accounting Standards
Board.
o The ability of the Company to manage the risks associated with the
foregoing as well as anticipated.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements.
Additional information concerning the Company and its business, including other
factors that could materially affect the Company's financial results, is
included in the Company's filings with the Securities and Exchange commission.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
See the "Interest Rate Sensitivity" section above.
Item 4. Controls and Procedures
Based upon an evaluation within the 90 days prior to the filing date of this
report, the Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect the Company's internal controls
subsequent to the date of the evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Company or its
subsidiaries is a party other than ordinary routine litigation incidental to
their respective businesses.
Item 2. Changes in Securities
None
25
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
99.1. Certificate of Chief Executive Officer
99.2. Certificate of Chief Financial Officer
b. Reports
None
26
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MAIN STREET TRUST, INC.
Date: November 14, 2002
By: /s/ David B. White
---------------------------------------------
David B. White, Executive Vice President
and Chief Financial Officer
By: /s/ Van A. Dukeman
---------------------------------------------
Van A. Dukeman, President
and Chief Executive Officer
27
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Van A. Dukeman, Chief Executive Officer of the Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Main Street Trust,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within the 90 days prior to the filing
date of this quarterly report (the "Evaluation Date");
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function);
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Van A. Dukeman
---------------------------------
Van A. Dukeman
Chief Executive Officer
28
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David B. White, Chief Financial Officer of the Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Main Street Trust,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within the 90 days prior to the filing
date of this quarterly report (the "Evaluation Date");
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function);
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ David B. White
---------------------------------
David B. White
Chief Financial Officer
29