-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D7XLJ3lORwjMDLcSyxbHVG683LWHwaG4wdXu/sYSHYn80EU7R5f0900Bn3lWKIIG g5Skaz4Ts0BbCPJAtvlfrA== 0000700565-96-000006.txt : 19960514 0000700565-96-000006.hdr.sgml : 19960514 ACCESSION NUMBER: 0000700565-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960513 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST MID ILLINOIS BANCSHARES INC CENTRAL INDEX KEY: 0000700565 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 371103704 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13368 FILM NUMBER: 96561504 BUSINESS ADDRESS: STREET 1: 1515 CHARLESTON AVE STREET 2: PO BOX 499 CITY: MATTOON STATE: IL ZIP: 61938 BUSINESS PHONE: 2172347454 MAIL ADDRESS: STREET 1: 1515 CHARLESTON AVENUE STREET 2: PO BOX 499 CITY: MATTOON STATE: IL ZIP: 61938 10-Q 1 SEC 10-Q FOR 1ST QTR UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q March 31, 1996 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_________________to_________________ Commission file number: 0-13368 First Mid-Illinois Bancshares, Inc. (Exact name of Registrant as specified in its charter) Delaware 37-1103704 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1515 Charleston Avenue, Mattoon, Illinois 61938 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: 217-234-7454 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock, par value $4.00 per share Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: 901,980 shares of Common Stock at May 10, 1996. FORM 10-Q For the Quarter Ended March 31, 1996 INDEX Beginning Page No. Part I - Financial Information Item 1 Financial Statements 3 Consolidated Balance Sheets 4 Consolidated Statements of Income 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II - Other Information Item 1 Legal Proceedings 26 Item 2 Changes in Securities 26 Item 3 Defaults Upon Senior Securities 26 Item 4 Submission of Matters to a Vote of Securitiy Holders 26 Item 5 Other Information 26 Item 6 Exhibits and Reports on Form 8-K 26 Signatures 27
PART I - FINANCIAL INFORMATION Item 1. Financial Statements The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information required by generally accepted accounting principles for complete financial statements and related footnote disclosures. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered for a fair presentation have been included. For further information, refer to the financial statements and notes included in the Registrant's 1995 Annual Report to Stockholders. FIRST MID-ILLINOIS BANCSHARES, INC. (unaudited) (dollars in thousands, except per share data) March 31, December 31, 1996 1995 Assets Cash and due from banks: Noninterest bearing $ 16,219 $ 17,536 Interest bearing 585 784 Excess funds sold - 4,975 Cash and cash equivalents 16,804 23,295 Investment certificates of deposits 99 99 Investment securities available-for-sale at fair value 121,045 119,388 Investment securities held-to-maturity (estimated fair value of $3,448 at March 31, 1996 and $3,409 at December 31, 1995) 3,431 3,381 Loans 307,242 307,004 Less allowance for loan losses 2,807 2,814 Net loans 304,435 304,190 Premises and equipment, net 9,526 9,487 Intangible assets 5,913 6,019 Other assets 6,225 6,635 Total assets $467,478 $472,494 Liabilities and Stockholders' Equity Deposits: Noninterest bearing $ 49,042 $ 51,017 Interest bearing 351,781 345,862 Total deposits 400,823 396,879 Other liabilities 3,439 4,591 Other borrowings 20,020 28,515 Long-term debt 6,950 7,200 Total liabilities 431,232 437,185 Stockholders' equity: Series A convertible preferred stock; no par value; authorized 1,000,000 shares; issued 620 shares with stated value of $5,000 per share 3,100 3,100 Common stock, $4 par value; authorized 2,000,000 shares; issued 900,268 shares at March 31, 1996 and 894,991 at December 31, 1995) 3,601 3,580 Additional paid-in-capital 4,127 3,969 Retained earnings 25,597 24,493 Net unrealized gain (loss) on available-for-sale investment securities (155) 191 36,270 35,333 Less treasury stock at cost, 2,000 shares 24 24 Total stockholders' equity 36,246 35,309 Total liabilities and stockholders' equity $467,478 $472,494 See accompanying notes to consolidated financial statements.
FIRST MID-ILLINOIS BANCSHARES, INC. Three months ended March 31, 1996 and 1995 (unaudited) (in thousands, except per share data) 1996 1995 Interest income: Interest and fees on loans $ 6,495 $ 5,823 Interest on investment securities 1,859 1,935 Interest on excess funds sold 59 60 Interest on deposits with financial institutions 18 20 Total interest income 8,431 7,838 Interest expense: Interest on deposits 3,783 3,480 Interest on other borrowings 298 179 Interest on long-term debt 125 140 Total interest expense 4,206 3,799 Net interest income 4,255 4,039 Provision for loan losses - 42 Net interest income after provision for loan losses 4,225 3,997 Other income: Trust fees 333 303 Brokerage and annuity fees 48 48 Service charges 410 364 Securities gains, net 2 - Mortgage banking income 105 27 Other 295 241 Total other income 1,193 983 Other expense: Salaries and employee benefits 1,927 1,800 Occupancy, furniture and equipment, net 560 549 Federal deposit insurance premiums 68 221 Other 987 1,042 Total other expense 3,542 3,612 Income before income taxes 1,876 1,368 Income taxes 700 405 Net income $ 1,176 $ 963 Per common share data: Primary earnings per share $ 1.23 $ 1.01 Fully diluted earnings per share $ 1.15 $ .96 See accompanying notes to consolidated financial statements.
FIRST MID-ILLINOIS BANCSHARES, INC. Three months ended March 31, 1996 and 1995 (unaudited) (in thousands, except per share data) 1996 1995 Cash flows from operating activities: Net income $ 1,176 $963 Adjustment to reconcile net income to net cash provided by operating activities: Provision for loan losses - 42 Depreciation, amortization and accretion, net 310 333 Gain on sales of securities, net (2) - Gain on sale of loans held for sale (74) (9) Origination of mortgage loans held for sale (2,167) (540) Proceeds from sales of mortgage loans held for sale 2,089 549 Net decrease in other assets 410 828 Net increase (decrease) in other liabilities (479) 300 Net cash provided by operating activities 1,263 2,466 Cash flows from investing activities: Capitalization of mortgage servicing rights (32) - Expenditures for premises and equipment (228) (139) Net (increase) in loans (241) (1,196) Proceeds from sales of: Securities available-for-sale 2,502 - Proceeds from maturities of: Securities available-for-sale 12,179 1,435 Securities held-to-maturity - 1,536 Purchases of: Securities available-for-sale (16,843) - Securities held-to-maturity (50) (3,512) Net cash (used in) investment activities (2,713) (1,876) Cash flows from financing activities: Net increase in deposits 3,944 7,252 Net increase (decrease) in other borrowings (8,495) 1,510 Repayment of long-term debt (250) - Dividends paid on common stock (240) (359) Net cash provided by (used in) financing activities (5,041) 8,403 Increase (decrease) in cash and cash equivalents (6,491) 8,993 Cash and cash equivalents at beginning of period 23,295 17,713 Cash and cash equivalents at end of period $16,804 $26,706 Additional disclosure of cash flow information: Interest paid during the period $ 4,134 $ 4,172 Income taxes paid during the period 125 - Loans transferred to real estate owned 14 73 See accompanying notes to consolidated financial statements.
Notes to the Consolidated Financial Statements 1) The consolidated financial statements include the accounts of First Mid-Illinois Bancshares, Inc. (the "Registrant"), and its wholly owned subsidiaries, First Mid-Illinois Bank & Trust, N.A. (the "Bank"), Heartland Savings Bank ("Heartland") and Mid-Illinois Data Services, Inc. ("MIDS"). Intercompany amounts have been eliminated. 2) The financial information reflects all adjustments which, in the opinion of management, are necessary to present a fair statement of the results of the interim periods ended March 31, 1996 and 1995, and all such adjustments are of a normal recurring nature. The results of the interim period ended March 31, 1996, are not necessarily indicative of the results expected for the year ending December 31, 1996. 3) Income for primary and fully diluted earnings per share is adjusted for dividends attributable to preferred stock. Primary earnings per share is based on the weighted average number of common shares outstanding. Fully diluted earnings per share data is computed by using the weighted average number of common shares outstanding, increased by the assumed conversion of the convertible preferred stock. The weighted average number of common equivalent shares used in calculating earnings per share for the periods ended March 31, 1996 and 1995, are as follows: Three months ended March 31, 1996 1995 Primary 898,152 881,616 Fully Diluted 1,023,454 1,006,918
4) The Registrant is required to classify its debt securities into one of three categories at the time of purchase: held-to-maturity, available- for-sale or trading. Held-to-maturity securities are those which management has the intent and ability to hold to maturity. These securities are carried at amortized historical cost. Available-for-sale securities are those securities which management may sell prior to maturity as a result of the Registrant's overall asset and liability management strategy. These securities are recorded at fair value. Trading securities are those securities bought and held principally for the purpose of selling them in the near term. Trading securities are recorded at the lower of historical cost or fair value. The Registrant currently has no securities designated as trading. 5) Heartland originates residential first mortgage loans both for its portfolio and for sale into the secondary market. Held for sale loans are carried at the lower of aggregate, amortized cost or estimated market value. Mortgage banking income consists of gains or losses on the sale of loans and servicing fee income. Origination costs for loans sold are expensed as incurred. 6) In May 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights" ("FAS 122"). FAS 122 amends FASB Statement No. 65 by establishing a new standard for capitalizing mortgage servicing rights. Under FAS 122, the accounting principles for mortgage servicing rights are the same for mortgages originated by the servicer as for those acquired through purchase transactions. Accordingly, under the new standard, the Registrant will record an asset for mortgage servicing rights when it sells mortgages and retains servicing. Mortgage servicing rights are to be amortized in proportion to the net servicing income over the period during which servicing income is expected to be received. Servicing rights are to be evaluated for impairment based on fair value. The Registrant adopted FAS 122 effective January 1, 1996. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations-Summary Net income for the three month period ended March 31, 1996, amounted to $1,176,000 ($1.15 per share on a fully diluted basis). This represents a $213,000 or 22.1% increase from the earnings of $963,000 ($.96 per share on a fully diluted basis) for the three month period ended March 31, 1995. A summary of the factors which contributed to the earnings increase follows (dollars in thousands, except per share data): Three months ended March 31, 1996 Total Percent Increase/ vs. March 31, 1995 Net Change (Decrease) Change 1996/1995 Per Share Net interest income $ 186 4.6% $ .18 Provision for loan losses (42) 100.0 (.04) Other income 210 21.4 .20 Other expense (70) (1.9) (.06) Income taxes 295 72.8 .29 Total increase in net income $ 213 22.1% $ .19
Net Interest Income and Interest Rate Sensitivity During the first three months in 1996, the Registrant's net interest income increased by $186,000 (4.6%) as compared with the net interest income for the same period in 1995. Net interest income for the three months ended March 31, 1996, was $4,225,000 as compared with $4,039,000 for the three months ended March 31, 1995. The table which follows sets forth details of average balances, interest income and expense and average rates for the Registrant for 1996 and 1995. The 1996 figures have been annualized based on the actual results through March 31, 1996. The annualized amounts are not necessarily indicative of the actual amounts that are expected or that will occur for the year ended December 31, 1996. As can be seen, annualized net interest margin is 3.98% in 1996 (on a tax equivalent basis). The overall cost of interest bearing liabilities and the yield on interest earning assets has remained stable in 1996 as compared with 1995. Distribution of Assets, Liabilities and Stockholders' Equity Interest Rates and Interest Differential Three Month Period Ended Year Ended March 31, 1996 December 31, 1995 (dollars in thousands) Avg Bal Int Avg Rate Avg Bal Int Avg Rate INTEREST EARNING ASSETS Investment certificates of deposits $ 99 $ 10 10.10% $ 99 $ 10 10.10% Due from banks-interest bearing 1,205 61 5.05% 1,511 84 5.56% Excess funds sold 4,297 236 5.49% 6,199 356 5.74% Investment securities: Taxable 112,022 6,776 6.05% 115,725 7,068 6.11% Tax-exempt 12,069 661 8.30% 12,831 733 8.66% Loans (net of unearned income) 303,506 25,980 8.56% 294,220 25,214 8.57% Total earning assets 433,198 33,724 7.86% 430,585 33,465 7.86% NONEARNING ASSETS Cash and due from banks 15,328 15,382 Premises and equipment 9,537 9,333 Other nonearning assets 12,009 12,699 Allowance for loan losses (2,814) (2,711) TOTAL ASSETS $467,258 $465,288 INTEREST BEARING LIABILITIES Demand deposits 105,915 2,756 2.60% 106,118 2,823 2.66% Savings deposits 39,296 1,048 2.67% 40,920 1,107 2.71% Time deposits 205,263 11,328 5.52% 202,305 10,958 5.42% Other borrowings 23,011 1,192 5.18% 24,140 1,266 5.24% Long-term debt 7,197 500 6.95% 7,636 571 7.48% Total interest-bearing 380,682 16,824 4.42% 381,119 16,725 4.39% liabilities NONINTEREST BEARING LIABILITIES Demand deposits 46,829 46,237 Other liabilities 3,674 4,561 TOTAL LIABILITIES 431,185 431,917 Stockholders' equity 36,073 33,371 TOTAL LIABILITIES & EQUITY $467,258 $465,288 Net interest earnings $16,900 3.44% $16,740 3.47% Net interest earnings as a % of interest earning assets on a full tax equivalent basis 3.98% 3.98%
(1) Full tax equivalent yields on tax exempt securities have been calculated using a 34% tax rate. (2) Investment securities on a full tax equivalent basis amounted to $1,002 and $1,111 for the period ended March 31, 1996 and December 31, 1995, respectively. (3) Nonaccrual loans have been included in the average balances. (4) Interest includes net loan fees. (5) 1996 interest income and expense amounts have been annualized based on results through March 31, 1996. The annualized amounts are not necessarily indicative of the actual amounts that are expected or that will occur for the year ending December 31, 1996. The following table describes changes in net interest income attributable to changes in the volume of earning assets compared to changes in interest rates (in thousands). 1996 Compared to 1995 Increase - (Decrease) Total Rate/ Change Volume Rate Volume INTEREST INCOME: Investment certificates of deposit $ - $ - $ - $ - Due from banks-interest bearing (23) (17) (8) 2 Excess funds sold (120) (109) (16) 5 Investment securities: Taxable (292) (226) (68) 2 Tax-exempt (72) (44) (30) 2 Loans 766 796 (29) (1) Total interest income 259 400 (151) 10 INTEREST EXPENSE: Demand deposits (67) (5) (62) - Savings deposits (59) (44) (16) 1 Time deposits 370 160 207 3 Other borrowings (74) (59) (16) 1 Long-term debt (71) (33) (40) 2 Total interest expense 99 19 73 7 NET INTEREST EARNINGS $ 160 $ 381 $(224) $ 3
Nonaccrual loans are not material and have been included in the average loan balances for purposes of this computation. No out-of-period adjustments have been included in the preceding analysis. Changes in rates and volume are computed on a consistent basis using the absolute values of changes in volume compared to the absolute values of the changes in rates. Loan fees included in interest income are not material. Interest on nontaxable securities is shown on a tax-equivalent basis using a 34% tax rate. There were no foreign activities by the Registrant during the three month periods ending March 31, 1996 and 1995. The following table is the Registrant's "static gap" schedule as of March 31, 1996. This is just one of several tools used by management to monitor the interest rate sensitivity position of the Registrant. The following table presents earning assets and interest bearing liabilities within selected time intervals based on their repricing and maturing characteristics. Interest rate sensitivity is measured by "gaps", (the difference between interest earning assets and interest bearing liabilities within a particular time interval). A positive GAP indicates more assets than liabilities could reprice in that time period and a negative GAP indicates more liabilities could reprice. (dollars in thousands) Number of Months Until Next Repricing Opportunity 0-1 1-3 3-6 6-12 12+ INTEREST EARNING ASSETS: Investment certificates of $ - $ - $ - $ - $ 99 deposits Due from banks-interest bearing 585 - - - - Excess funds sold - - - - - Investment securities: Taxable 43,305 12,261 5,422 16,375 35,356 Tax-exempt - 215 20 1,247 10,275 Loans 39,941 15,630 18,629 37,237 195,805 Total 83,831 28,106 24,071 54,859 241,535 INTEREST BEARING LIABILITIES: Savings and NOW accts 110,219 - - - - Money market accounts 35,222 - - - - Other time deposits 30,869 27,624 57,840 36,235 53,772 Other borrowings 4,500 9,020 - 3,000 3,500 Long-term debt 6,950 - - - - Total $ 187,760 $ 36,644 $ 57,840 $ 39,235 $ 57,272 Periodic GAP (103,929) (8,538) (33,769) 15,624 184,263 Cumulative GAP (103,929) (112,467) (146,236) (130,612) 53,651 Gaps as a percent of interest earning assets: Periodic (24.0%) (2.0%) (7.8%) 3.6% 42.6% Cumulative (24.0%) (26.0%) (33.8%) (30.2%) 12.4%
The preceding tabulation classifies savings and NOW accounts as immediately repriceable because if rates paid on these accounts were to change, the rates would, most likely, change on all such accounts at the same time. As a practical matter, management is able to exercise a significant amount of control over these rates and they have shown to be very resistant to rate changes. Management of the Registrant continually monitors its interest rate sensitivity position. While the preceding table is an indication of interest rate risk, overall interest rate sensitivity is influenced by other factors such as the competitive environment, the timing and amount of rate changes, loan prepayments and the inherent stability of certain deposits. A number of different factors, including those objectively determined and measurable, as well as those subjectively ascertained, are considered by management in its evaluation of interest rate risk. As a result of this analysis, management believes that the overall level of interest rate risk is manageable and does not believe that changing rates will have a material negative effect on the Registrant's net interest margin. Investment Portfolio The Registrant adopted Statement of Financial Accounting Standards No. 115 ("FAS 115"), "Accounting for Certain Investments in Debt and Equity Securities" effective December 31, 1993. Investment securities that the Registrant has the positive intent and ability to hold to maturity are classified as "held-to-maturity" and reported at amortized cost. All other investment securities are classified as "available-for-sale" and have been reported at their estimated fair value at March 31, 1996, and December 31, 1995. In accordance with FAS 115, the unrealized losses, net of related taxes, in the amount of $155,000 have been included in stockholders' equity at March 31, 1996. Total investment securities designated as available-for-sale represented 97% of the portfolio and held-to-maturity represented 3%. During the three months ended March 31, 1996, $2,500,000 (par value) available-for-sale and no held- to-maturity investment securities were sold. During the three months ended March 31, 1996, $50,000 (par value) held-to-maturity and $16,650,000 (par value) available-for-sale investment securities were purchased. There were three investment securities with a par value totaling $2,500,000 that were sold at a total gain of $2,000 during the first quarter of 1996. The change in the amount of net unrealized gain (loss) on available-for-sale securities from December 13, 1995 to March 31, 1996 amounted to a loss of $346,000. This loss reflects the decline in the market value of available- for-sale securities during the last three months. The following table provides detailed information for investment securities at March 31, 1996 and December 31, 1995, (in thousands): Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value Available-for-sale - 03/31/96 U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 76,605 $ 314 $ (928) $ 75,991 Obligations of state and political subdivisions 8,454 396 (5) 8,845 Mortgage backed securities 34,003 204 (216) 33,991 Other securities 2,218 - - 2,218 Total available-for-sale $121,280 $ 914 $(1,149) $121,045 Held-to-maturity - 03/31/96 Obligations of state and political subdivisions $ 3,432 $ 35 $ (19) $ 3,448 Available-for-sale - 12/31/95 U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 72,599 $ 481 (683) $ 72,397 Obligations of state and political subdivisions 8,628 440 (7) 9,061 Mortgage backed securities 35,766 222 (163) 35,825 Other Securities 2,105 - - 2,105 Total available-for-sale $119,098 $ 1,143 $ (853) $119,388 Held-to-maturity - 12/31/95 Obligations of state and political subdivisions $ 3,381 $ 43 $ (15) $ 3,409
Other securities include stock in the Federal Home Loan Bank totaling $1,812,000 at March 31, 1996 and $1,699,000 at December 31, 1995. The following table indicates the expected maturities of investment securities classified as available-for-sale and held-to-maturity at March 31, 1996 (dollars in thousands) and their weighted average yield for each range of maturities. Mortgage backed securities are aged according to their weighted average life. All other securities are shown at their contractual maturity. Book Value Maturing Investment Securities One After 1 After 5 After year through through ten or less 5 years 10 years years Total Available-for-sale: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 13,830 $ 51,149 $ 11,128 $ 498 $ 76,605 Obligations of state and political subdivisions 1,011 6,739 704 - 8,454 Mortgage-backed securities 3,240 26,669 829 3,265 34,003 Other securities - - - 2,218 2,218 Total available-for-sale securities $ 18,081 $ 84,557 $ 12,661 $ 5,981 $121,280 Weighted average yield 5.93% 5.51% 5.61% 8.24% Full tax equivalent yield 6.03% 5.75% 5.79% 8.24% Held-to-maturity: Obligations of state and political subdivisions $ 693 $ 1,812 $ 927 $ - $ 3,432 Weighted average yield 4.63% 5.02% 5.14% - Full tax equivalent yield 7.06% 7.37% 7.79% -
The weighted average yields are calculated on the basis of the cost and effective yields weighted for the scheduled maturity of each security. Full tax equivalent yields have been calculated using a 34% tax rate. The maturities of, and yields on, mortgage backed securities have been calculated using actual quarterly repayment history. However, where securities have call features and market values greater than par, the call date has been used to determine the expected maturity. With the exception of obligations of the U.S. Treasury and other U.S. Government corporations and agencies, there were no investment securities of any single issuer, the book value of which exceeded 10% of stockholders' equity at March 31, 1996. In December 1995, the Registrant reclassified certain investment securities between held-to-maturity and available-for-sale in accordance with guidelines issued by the Financial Accounting Standards Board ("FASB") permitting a one- time change in classification. Based on discussion and analysis, the Registrant decided that only local, non-rated municipal securities would be classified as held-to-maturity and the remaining portfolio would be designated as available-for-sale. The book value and gross unrealized loss of securities transferred from held-to-maturity to available-for-sale amounted to $52,536,000 and $445,000, respectively. Loan Portfolio The following tables provide information relating to the Registrant's loan portfolio, risk elements within the portfolio and historical loan loss experience. Types of Loans The composition of the Registrant's loan portfolio as of March 31, 1996, December 31, 1995 and 1994 is as follows (in thousands): 1996 1995 1994 Commercial, financial and agricultural $ 66,215 $ 65,916 $ 61,520 Real estate - mortgage 210,835 211,147 195,524 Installment 28,380 27,996 22,294 Other 1,812 1,945 2,815 Total loans $307,242 $307,004 $282,153
Maturities and Sensitivities of Loans to Changes in Interest Rates The following table presents the aggregate balances of loans outstanding as of March 31, 1996, by maturities, based on remaining scheduled, contractual repayments of principal (in thousands): Over 1 One year through Over or less 5 years 5 years Total Commercial, financial and agricultural $ 45,444 $ 19,249 $ 1,522 $ 66,215 Real estate - mortgage 45,768 107,408 57,659 210,835 Installment 6,504 20,873 1,003 28,380 Other 249 882 681 1,812 Total loans $ 97,965 $148,412 $ 60,865 $307,242
As of March 31, 1996, loans with maturities over one year were comprised of $164,359,000 in fixed rate loans and $44,918,000 in variable rate loans. The loan maturities noted previously are based on the contractual provisions of the individual loans. The Registrant has no general policy regarding rollovers, and borrower requests for such are handled on a case by case basis. As of March 31, 1996, the Registrant had loan concentrations in agricultural industries of 11.7% of outstanding loans. The Registrant had no other industry loan concentrations in excess of 10% of outstanding loans. There was no foreign activity required to be disclosed for the reporting period ended March 31, 1996. Risk elements The Registrant adopted Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan" ("FAS 114") and Statement of Financial Accounting Standards No. 118 "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosure" ("FAS 118") effective January 1, 1995. FAS 114 applies to all creditors and to all loans that are accounted for at fair value or at the lower of cost or fair value. It requires that impaired loans be measured at the present values of expected future cash flows by discounting those cash flows at the loan's effective interest rate. FAS 118 amends FAS 114 to allow a creditor to use existing methods for recognizing interest income on an impaired loan. FAS 118 also amends the disclosure requirements of FAS 114 to require information about the recorded investment in certain impaired loans and about how a creditor recognizes interest income related to those impaired loans. The Registrant had $1,110,000 of impaired loans as of March 31, 1996. At March 31, 1996, the recorded investment of impaired loans totaled $1,110,000 as compared with $1,240,000 at December 31, 1995. There was no related allowance for these impaired loans either at March 31, 1996 or December 31, 1995. The average recorded investment in impaired loans during 1996 was $1,026,000. Total interest income which would have been recorded under the original terms of the impaired loans was $104,000. Total interest income recorded on a cash basis was $5,000. It is the Registrant's policy to discontinue the accrual of interest income on any loan when, in the opinion of management, there is reasonable doubt as to the timely collectibility of interest or principal. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collectibility of interest or principal. The following table presents information concerning the aggregate amount of nonperforming loans at the dates indicated. Nonperforming loans include: (a) loans accounted for on a nonaccrual basis; (b) accruing loans contractually past due 90 days or more as to interest or principal payments; and (c) loans not included in (a) or (b) previously, which are "restructured loans" as defined in Statement of Financial Accounting Standards No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings." Nonperforming Loans (in thousands) March 31, December 31, 1996 1995 1994 1993 1992 Nonaccrual loans $ 544 $ 636 $ 393 $ 497 $ 685 Loans past due ninety days or more and still accruing 558 554 509 248 585 Restructured loans which are performing in accordance with revised terms 566 604 772 307 383
Interest income that would have been reported in 1996 if nonaccrual and restructured loans had been performing totaled $104,000 for the three month period ended March 31, 1996. Interest income relating to these non-performing loans that was included in income totaled $5,000 for the same period. Summary of Loan Loss Experience There was no provision for loan losses charged to expense for the three months ended March 31, 1996, as compared to $42,000 for the three months ended March 31, 1995. This decrease was due to reduced loan charge offs, a lower level of problem loans and favorable economic conditions which allowed the Registrant to reduce the provision. Management establishes an allowance for loan losses which reduces the total loans outstanding by an estimate of uncollectible loans. Loans deemed to be uncollectible are charged against and reduce the allowance. The provision for loan losses and recoveries are credited to and increase the allowance. The allowance for loan losses totaled $2,807,000 (.91% of total loans) at March 31, 1996, and $2,814,000 (.92% of total loans) at December 31, 1995. The allowance for loan losses equaled 168.3% and 156.9% of total non-performing loans at March 31, 1996 and December 31, 1995, respectively. Analysis of the Allowance for Loan Losses A summary of loan loss experience for the periods indicated is as follows (dollars in thousands): Three months ended March 31, Year ended December 31, 1996 1995 1994 1993 1992 Average loans Outstanding, net of unearned income $303,506 $294,220 $243,166 $214,408 $178,919 Allowance- beginning of year 2,814 2,608 2,110 1,906 1,566 Balance of acquired subsidiary - - 343 - - Charge-offs: Commercial, financial and agricultural - 18 29 140 298 Real estate-mortgage - 111 28 241 350 Installment 24 57 120 86 139 Total charge-offs 24 186 177 467 787 Recoveries: Commercial, financial and agricultural 4 73 98 150 167 Real estate-mortgage - - 21 3 18 Installment 13 39 45 26 49 Total recoveries 17 112 164 179 234 Net charge-offs (recoveries) 7 74 13 288 553 Provision for loan losses - 280 168 492 543 Allowance-end of period $ 2,807 $2,814 $ 2,608 $ 2,110 $ 1,906 Ratio of net charge-offs (recoveries) to average loans .00% .03% .01% .13% .31% Ratio of allowance for loan losses to loans outstanding (less unearned interest) at end of period .91% .92% .93% .95% .89%
The allowance for loan losses represents management's best estimate of the reserve necessary to adequately cover losses that could ultimately be realized from current loan exposures. In determining the adequacy of the allowance for loan losses, management relies predominantly on a disciplined credit review and approval process which extends to the full range of the Registrant's credit exposure. The review process is directed by overall lending policy and is intended to identify, at the earliest possible stage, borrowers who might be facing financial difficulty. Once identified, the magnitude of the exposure to individual borrowers is quantified in the form of specific allocation of the allowance for loan losses. Collateral values are considered by management in the determination of such specific allocations. Additional factors considered by management in evaluating the overall adequacy of the allowance include historical net loan losses, the level and composition of nonaccrual, past due and restructured loans and the current and anticipated economic conditions in the region where the Registrant operates. In addition to the aforementioned considerations, management also considers the experience of certain other similarly situated banks, thrifts and bank holding companies. Allocation of the Allowance for Loan Losses The allowance for loan losses, in management's judgment, would be allocated as follows to cover potential loan losses (in thousands): March 31, 1996 December 31, 1995 Allowance % of Allowance % of for loans for loans loan to total loan to total losses loans losses loans Commercial, financial and agricultural $ 1,558 21.6% $ 1,554 21.5% Real estate-mortgage 384 68.6% 314 68.8% Installment 128 9.2% 131 9.1% Other - .6% - .6% Total allocated 2,070 1,999 Unallocated 737 N/A 815 N/A Allowance at end of reported period $ 2,807 100.0% $ 2,814 100.0%
The allowance is allocated to the individual loan categories by a specific reserve for all classified loans plus a percentage of loans not classified based on historical losses. There were no other interest-bearing assets which would be required to be disclosed as having "risk elements" if such other assets were loans. Return on Equity and Assets The following table presents selected financial ratios for the three months ended March 31, 1996 (annualized) and the years ended December 31, 1995 and 1994: 1996 1995 1994 Return on average total assets 1.01% .84% .83% Return on average total stockholders' equity 13.04% 11.76% 11.35% Return on average common stockholders' equity 13.39% 12.02% 11.59% Dividend payout ratio 16.46% 19.76% 20.89% Average total equity to average assets ratio 7.72% 7.17% 7.38%
Deposit Base The following table details the year-to-date average deposits for the indicated periods and weighted average rates at March 31, 1996, December 31, 1995 and 1994 (in thousands): March 31, December 31, December 31, 1996 1995 1994 Weighted Weighted Weighted Average Average Average Amount Rate Amount Rate Amount Rate Demand deposits: Non-interest bearing $ 46,829 - $ 46,237 - $ 37,527 - Interest bearing 105,915 2.60% 106,118 2.66% 110,069 2.51% Savings 39,296 2.67% 40,920 2.71% 38,985 2.59% Time deposits 205,263 5.52% 202,305 5.42% 170,252 4.29% Total average deposits $397,303 3.81% $395,580 3.76% $356,833 3.10%
The following table sets forth the maturity of time deposits of $100,000 or more at March 31, 1996 (in thousands): Time Deposits Other Total 3 months or less $ 19,483 $ - $ 19,483 Over 3 through 6 months 8,575 - 8,575 Over 6 through 12 months 4,851 3,000 7,851 Over 12 months 5,775 - 5,775 Total $ 38,414 $ 3,000 $ 41,414
There were no time deposits of $100,000 or more that were issued by foreign offices at March 31, 1996. Other Borrowings Other borrowings at March 31, 1996, December 31, 1995 and December 31, 1994 are shown (in thousands) in the following table: 1996 1995 1994 Securities sold under agreement to repurchase $ 9,020 $ 16,815 $ 15,590 Federal Home Loan Bank advances: Overnight advances 1,300 2,200 3,500 Fixed term advances due in one year or less 3,000 6,000 - Fixed term advances due after one year 3,500 3,500 - Federal funds purchased 3,200 - 500 Total other borrowings $ 20,020 $ 28,515 $ 19,590
Federal Home Loan Bank advances are secured by stock of the Federal Home Loan Bank of Chicago and by residential mortgage loans. Information concerning such borrowings for the periods ended March 31, 1996 (three months), December 31, 1995 (twelve months) and December 31, 1994 is as follows (in thousands): 1996 1995 1994 Maximum amount of borrowings outstanding at any month end $ 29,480 $ 36,770 $ 23,460 Average amount outstanding 23,011 24,114 13,103 Weighted average interest rate-end of period 5.31% 5.11% 3.55% Weighted average interest rate during the year 5.18% 5.24% 3.59%
Other Income Other income increased $210,000 or 21.4% to $1,193,000 in the first three months of 1996 as compared with $983,000 in the same period of 1995. The following table sets forth information regarding the major components of and changes in other income (dollars in thousands). Three months ended Change March 31, 1996/1995 1996 1995 Amount Percent Trust fees $ 333 $ 303 $ 30 9.9% Brokerage and annuity fees 48 48 - - Service charges 410 364 46 12.6 Securities gains, net 2 - 2 100.0 Mortgage banking income 105 27 78 288.9 Other 295 241 54 22.4 Total other income $1,193 $ 983 $ 210 21.4%
Trust fees for the first three months of 1996 increased slightly from $303,000 in the first three months of 1995 to $333,000 in 1996. Trust assets have increase from $191 million to $222 million representing approximately 100 accounts. Revenues from brokerage and annuity fees have remained constant in the first quarter of 1996 as compared with the same period ended 1995. Service charges on deposits consist of fees on both interest bearing and non-interest bearing accounts and charges for other items, including insufficient funds, overdrafts and stop payment requests. These fees increased 12.6% when comparing year-to-date 1996 and 1995, primarily due to the increased balances in deposit accounts. During the three month period ended March 31, 1996, net gains from sales of securities was $2,000. No securities were sold in the period ended March 31, 1995. Mortgage banking income has increased significantly in the first quarter of 1996 as compared to 1995. This has resulted from Heartland originating more mortgage loans and selling them in the secondary market. Also affecting loan sold income is FAS 122, "Accounting for Mortgage Servicing Rights" which the Registrant adopted January 1, 1996. The Registrant recognized $32,000 of additional income by recording the value of the originated mortgage servicing rights associated with the loans sold during the first quarter of 1996. During the three month period ended March 31, 1996 as compared to the same period in 1995, other income increased $54,000 (22.4%). This increase was a result of a gain on sale of $47,000 of the Sullivan facility's former bookkeeping building. Other Expense Other expense decreased $70,000 or (1.9%) to $3,542,000 in the first three months of 1996 as compared with $3,612,000 in the first three months of 1995. Other expense as a percentage of average assets remained stable at .8% during the first three months of 1996 and 1995. The following table sets forth information regarding the major components of and changes in other expense (dollars in thousands). Three months ended Change March 31, 1996/1995 1996 1995 Amount Percent Salaries and employee benefits $ 1,927 $ 1,800 $ 127 7.1% Occupancy, furniture and equipment, net 560 549 11 2.0 Federal deposit insurance premiums 68 221 (153) (69.2) Other 987 1,042 (55) (5.3) Total other expense $ 3,542 $ 3,612 $ (70) (1.9%)
Salaries and employee benefits, the largest component of other expense, increased $127,000 or 7.1% during the first three months of 1996 as compared with the same period in 1995. This increase was due to regular pay increases made to the employees. Net occupancy, furniture and equipment expense increased $11,000 or 2% during the first three months of 1996 compared with the same period in 1995. This increase was attributable in part to the new facility opened in Arcola in September 1995, and several remodeling projects being completed at facilities throughout the Company. FDIC Insurance premiums decreased $153,000 or (69.2%) in the three months of 1996 compared with 1995. This decrease was the result of a reduction in the deposit insurance assessments charged to members of the Bank Insurance Fund (the "BIF"), such as the Bank, from a range of 0.23% to 0.31% of deposits for the semi-annual assessment period which began January 1, 1995, to a range of $1,000 to 0.27% of deposits for the semi-annual assessment period which began January 1, 1996. Heartland, as a member of the Savings Association Insurance Fund (the "SAIF"), was not affected by this reduction. Because the SAIF reserves do not yet equal the statutorily designated reserve ratio of 1.25% of total SAIF-insured deposits, the FDIC is prohibited by federal law from reducing SAIF deposit insurance assessments to the levels currently charged members of the BIF. As a result, SAIF assessments for the semi-annual assessment period which began January1, 1996, remain at the range 0.23% to 0.31% of deposits, the same range in effect for the semi-annual assessment period which began January 1, 1995. Other expense decreased $55,000 or (5.3%) for the first three months of 1996 as compared with the same period of 1995. This decrease consisted of a $55,000 net gain on the sale of other real estate owned property located in Neoga and Charleston. Income Taxes The Registrant recorded federal income tax expense of $628,000 for the three months ended March 31, 1996, as compared to $405,000 for the same period in 1995. The effective federal income tax rate was 33.5% for the three months ended March 31, 1996, as compared with 29.6% in the same period in 1995. Tax exempt interest as a percentage of total interest income declined in 1996, which contributed to the higher tax rates. Also, the Registrant recorded state income tax in the amount of $72,000 for the three months ended March 31, 1996. In past years, the Registrant's low loan to deposit ratio and heavy reliance on interest income from state tax exempt securities had combined to produce operating losses for state tax purposes. These net operating loss carryforwards generated in years past have now been exhausted. Liquidity Liquidity represents the ability of the Registrant and its subsidiaries to meet the present and future requirements of customers for new loans and deposit withdrawals. Liquidity management focuses on the ability to obtain funds economically and to maintain assets which may be converted into cash at minimal costs. The Registrant has provided for its liquidity needs through growth in core deposits, maturing loans and investment securities, and by maintaining adequate balances in other short-term investments. Management continually and carefully monitors its expected liquidity requirements, focusing primarily on cash flows from operating, investing and financing activities. A summary of the Registrant's cash flows from these sources during the three month period ended March 31, 1996 and 1995 follows (in thousands): Three months ended March 31, 1996 1995 Cash flow provided by (used in): Operating activities $ 1,263 $ 2,466 Investing activities (2,713) (1,876) Financing activities (5,041) 8,403 Total $(6,491) $ 8,993
The Registrant's need for liquidity is influenced by several factors including the increased loan demand brought on by the economic expansion in the Registrant's market area. Also affecting the Registrant's cash flow is its relationship with seasonal customers such as public entities, highway contractors and those associated with the agricultural industry. Capital Resources The Registrant and its subsidiaries have capital ratios which are higher than the fully-phased in regulatory capital requirements. The requirements call for a minimum total risk-based capital ratio of 8% and a minimum leverage ratio of 3% for the most highly rated banks that do not expect significant growth. All other institutions are required to maintain a ratio of Tier 1 capital to total assets of 4% to 5% depending on their particular circumstances and risk profiles. At March 31, 1996, the Registrant's leverage ratio was 6.61%. A tabulation of the Registrant's and its subsidiaries' risk-based capital ratios as of March 31, 1996, follows: Tier one Total risk-based risk-based capital ratio capital ratio First Mid-Illinois Bancshares, Inc. 11.0% 12.0% First Mid-Illinois Bank & Trust, N.A. 12.4% 13.4% Heartland Savings Bank 17.1% 17.9%
Banks and bank holding companies are generally expected to operate at or above the minimum capital requirements. These ratios are well in excess of regulatory minimums and will allow the Registrant to operate without capital adequacy concerns. PART II - OTHER INFORMATION Item 1. Legal Proceedings. There are no material pending legal proceedings to which the Registrant or any of its subsidiaries is a party other than ordinary routine litigation incidental to their respective businesses. Item 2. Changes in Securities. Not applicable. Item 3. Defaults upon Senior Securities. Not applicable. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. Not applicable. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 27. Financial Data Schedule (b) Form 8-K None filed during the three month period ended March 31, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST MID-ILLINOIS BANCSHARES, INC. (Registrant) Date: May 10, 1996 /s/ Daniel E. Marvin, Jr. ____________________ _____________________________________ Daniel E. Marvin, Jr. President and Chief Executive Officer Date: May 10, 1996 /s/ William S. Rowland ____________________ ____________________________________ William S. Rowland Chief Financial Officer EX-27 2
9 1000 3-MOS DEC-31-1996 MAR-31-1996 16804 585 0 0 121045 3448 3431 307242 2807 467478 400823 16520 3439 10450 0 3100 3601 29545 467478 6495 1859 77 8431 3786 4206 4225 0 2 3542 1876 1876 0 0 1176 1.23 1.15 7.86 544 558 566 1110 2814 24 17 2807 2807 0 737
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