[PERIOD-TYPE] 9-MOS
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
SEPTEMBER 30, 1995
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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: 889,108 shares of Common
Stock at November 10, 1995.
<PAGE>
FORM 10-Q
For the Quarter Ended
September 30, 1995
INDEX
Beginning
Page No.
Part I - Financial Information
Item 1. Financial Statements 3
Consolidated Balance Sheets 4
Consolidated Statements of Income 5
Consolidated Statement of Cash Flows 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Part II - Other Information
Item 1. Legal Proceedings 31
Item 2. Changes in Securities 31
Item 3. Defaults Upon Senior Securities 31
Item 4. Submission of Matters to a Vote
of Security Holders 31
Item 5. Other Information 31
Item 6. Exhibits and Reports on Form 8-K 31
Signatures 32
<PAGE>
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 1994 Annual Report to Stockholders.
<PAGE>
FIRST MID-ILLINOIS BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited) (in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
Assets
Cash and due from banks:
Noninterest bearing $ 14,120 $ 17,631
Interest bearing 795 82
Excess funds sold 10,250 -
Cash and cash equivalents 25,165 17,713
Investment certificates of deposits 99 99
Investment securities available-for-
sale at fair value 61,831 68,973
Investment securities held-to-
maturity (approximate fair value of
$63,787,000 at September 30, 1995
and $59,836,000 at December 31, 1994 64,259 62,304
Loans 308,562 282,153
Less allowance for loan losses 2,788 2,608
Net loans 305,774 279,545
Premises and equipment, net 9,342 9,336
Intangible assets 6,171 6,627
Other assets 7,567 6,561
Total assets $ 480,208 $ 451,158
Liabilities and Stockholders' Equity
Deposits:
Noninterest bearing $ 46,789 $ 45,159
Interest bearing 352,081 344,409
Total deposits 398,870 389,568
Other liabilities 3,818 3,700
Short term borrowings 35,120 19,590
Long term debt 7,450 7,700
Total liabilities 445,258 420,558
Stockholders' equity
Preferred stock no par value;issued 620 shares
of Series A preferred with stated value of
$5,000 per share 3,100 3,100
Common stock, $4 par value; authorized
2,000,000 shares; issued 891,108
shares in 1995 and 878,769 in 1994) 3,549 3,515
Additional paid-in-capital 3,872 3,531
Retained earnings 24,067 21,577
Net unrealized gain(loss) on available-for-
sale investment securities, net of tax 386 (1,099)
34,974 30,624
Less treasury stock at cost, 2,000 shares 24 24
Total stockholders' equity 34,950 30,600
Total liabilities and stockholders' equity $ 480,208 $ 451,158
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
FIRST MID-ILLINOIS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended September 30, 1995 and 1994
(unaudited) (in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Interest income:
Interest and fees on loans $ 6,589 $ 4,941
Interest on investment securities 1,996 1,563
Interest on excess funds sold 75 44
Interest on deposits with financial
institutions 11 8
Total interest income 8,671 6,556
Interest expense:
Interest on deposits 3,825 2,710
Interest on short-term borrowings 439 129
Interest on long-term debt 142 98
Total interest expense 4,406 2,937
Net interest income 4,265 3,619
Provision for loan losses 48 12
Net interest income after provision for
loan losses 4,217 3,607
Other income:
Trust fees 237 201
Brokerage and annuity fees 42 76
Service charges 406 385
Securities losses, net - (46)
Mortgage banking income 69 35
Other 225 183
Total other income 979 834
Other expense:
Salaries and employee benefits 1,908 1,727
Occupancy, furniture and equipment, net 584 508
Federal deposit insurance premiums 53 192
Other 1,026 842
Total other expense 3,571 3,269
Income before income taxes 1,625 1,172
Income taxes 532 341
Net income $ 1,093 $ 831
Per common share data:
Primary earnings per share $ 1.15 $ .87
Fully diluted earnings per share $ 1.08 $ .83
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
FIRST MID-ILLINOIS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Nine months ended September 30, 1995 and 1994
(unaudited) (in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Interest income:
Interest and fees on loans $ 18,593 $ 13,728
Interest on investment securities 5,902 4,792
Interest on excess funds sold 212 85
Interest on deposits with financial
institutions 78 68
Total interest income 24,785 18,673
Interest expense:
Interest on deposits 10,973 7,788
Interest on short-term borrowings 899 293
Interest on long-term debt 431 248
Total interest expense 12,303 8,329
Net interest income 12,482 10,344
Provision for loan losses 138 156
Net interest income after provision for
loan losses 12,344 10,188
Other income:
Trust fees 845 839
Brokerage and annuity fees 132 293
Service charges 1,155 1,070
Securities losses, net - (25)
Mortgage banking income 167 134
Other 647 551
Total other income 2,946 2,862
Other expense:
Salaries and employee benefits 5,634 5,141
Occupancy, furniture and equipment, net 1,702 1,448
Federal deposit insurance premiums 495 584
Other 3,063 2,427
Total other expense 10,894 9,600
Income before income taxes 4,396 3,450
Income taxes 1,390 995
Net income $ 3,006 $ 2,455
Per common share data:
Primary earnings per share $ 3.15 $ 2.55
Fully diluted earnings per share $ 2.97 $ 2.45
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
FIRST MID-ILLINOIS BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Three months ended September 30, 1995 and 1994
(unaudited) (in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Cash flows fron operating activities:
Net income $ 1,093 $ 831
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 48 12
Depreciation, amortization and accretion, net 285 336
Securities losses, net - 46
Gain on sale of loans held for sale (43) (16)
Origination of mortgage loans held for sale (4,305) (1,301)
Proceeds from sales of mortgage loans
held for sale 4,293 1,351
Net (increase) in other assets (719) (627)
Net decrease in other liabilities (960) (450)
Net cash provided by (used in) operating
activities (308) 182
Cash flows from investing activities:
Expenditures for premises and equipment (185) (79)
Net (increase) in loans (12,658) (17,634)
Proceeds from sales of:
Investment securities - 6,451
Proceeds from maturities of:
Investment securities - 2,994
Securities available-for-sale 4,922 -
Securities held-to-maturity 2,749 -
Purchases of:
Securities available-for-sale (2,006) -
Securities held-to-maturity (2,987) -
Net decrease in investment certificates of
deposits - 599
Net cash (used in) investment activities (10,165) (7,669)
Cash flows from financing activities:
Net increase in deposits 9,600 11,894
Net increase in short-term borrowings 5,640 4,390
Repayment of long-term debt (250) -
Dividends paid on common stock - -
Dividends paid on preferred stock - -
Net cash provided by financing activities 14,990 16,284
Increase in cash and cash equivalents 4,517 8,797
Cash and cash equivalents at beginning of period 20,648 14,581
Cash and cash equivalents at end of period $ 25,165 $ 23,378
Additional disclosure of cash flow information:
Interest paid during the period $ 4,417 $ 3,472
Income taxes paid during the period 500 200
Loans transferred to real estate owned 26 61
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
FIRST MID-ILLINOIS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1995 and 1994
(unaudited) (in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,006 $ 2,455
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 138 156
Depreciation, amortization and accretion, 959 1,131
Securities losses, net - 25
Gain on sale of loans held for sale (60) (63)
Origination of mortgage loans held for sale (5,330) (3,496)
Proceeds from sales of mortgage loans
held for sale 5,689 4,251
Net (increase) in other assets (1,006) (170)
Net increase (decrease) in other liabilities (359) 410
Net cash provided by operating activities 3,037 4,699
Cash flows from investing activities:
Expenditures for premises and equipment (556) (246)
Net (increase) in loans (26,666) (31,852)
Proceeds from sales of:
Investment securities - 14,986
Proceeds from maturities of:
Investment securities - 24,612
Securities available-for-sale 15,124 -
Securities held-to-maturity 4,036 -
Purchases of:
Securities available-for-sale (5,685) (11,794)
Securities held-to-maturity (5,991) (12,776)
Net decrease in investment certificates of
deposits - 2,776
Net cash (used in) investment activities (19,738) (14,294)
Cash flows from financing activities:
Net increase in deposits 9,302 2,287
Net increase in short-term borrowings 15,530 10,370
Repayment of long-term debt (250) (300)
Dividends paid on common stock (387) (658)
Dividends paid on preferred stock (42) (143)
Net cash provided by financing activities 24,153 11,556
Increase in cash and cash equivalents 7,452 1,961
Cash and cash equivalents at beginning of period 17,713 21,417
Cash and cash equivalents at end of period $ 25,165 $ 23,378
Additional disclosure of cash flow
information:
Interest paid during the period $ 12,700 $ 8,843
Income taxes paid during the period 1,350 1,050
Loans transferred to real estate owned 135 217
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
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.
On October 4, 1994, the Bank acquired all of the outstanding stock of
Downstate Bancshares, Inc. ("DBI") which owned 100% of the stock of
Downstate National Bank ("DNB"). DNB had locations in Altamont and
Effingham, Illinois. Immediately following the acquisition, DBI was
dissolved and DNB was merged with and into the Bank with the Bank being
the surviving entity. DBI was purchased for cash of $8,570,000 with
$5,570,000 of that amount being internally generated funds and $3,000,000
resulting from additional long-term borrowings of the Registrant. The
acquisition of DBI by the Bank was accounted for using the purchase
method of accounting whereby the assets and liabilities of DBI were
recorded at their fair values as of the acquisition date and the
operating results of the DBI operations have been combined with those of
the Registrant since October 4, 1994.
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 September 30, 1995 and 1994, and all such
adjustments are of a normal recurring nature. The results of the interim
period ended September 30, 1995, are not necessarily indicative of the
results expected for the year ending December 31, 1995.
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 September 30, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Primary 889,108 876,769 885,475 876,769
Fully Diluted 1,014,410 1,002,071 1,010,777 1,002,071
</TABLE>
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.
<PAGE>
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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations-Summary
For the third quarter, net income amounted to $1,093,000 ($1.08 per share on
a fully diluted basis) in 1995 as compared with $831,000 ($.83 per share on a
fully diluted basis) in 1994. A summary of the factors which contributed to
the quarterly earnings increase follows (dollars in thousands except per share
data):
<TABLE>
<CAPTION>
Three months ended September 30, 1995 Total Percent Increase/
vs. September 30, 1994 Net Change (Decrease)
Change 1995/1994 Per Share
<S> <C> <C> <C>
Net interest income $ 646 17.9% $ .64
Provision for loan losses 36 300.0 .04
Other income 145 17.4 .14
Other expense 302 9.2 .30
Income taxes 191 56.0 .19
Total increase in net income $ 262 31.5% $ .25
</TABLE>
An explanation for the change in "other income" and "other expense" is shown
on pages 25 through 27.
Net income for the nine month period ended September 30, 1995, amounted to
$3,006,000 ($2.97 per share on a fully diluted basis). This represents a
$551,000 or 22.4% increase from the earnings of $2,455,000 ($2.45 per share on
a fully diluted basis) earnings for the nine month period ended September 30,
1994. A summary of the factors which contributed to the earnings increase
follows (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
Nine months ended September 30, 1995 Total Percent Increase/
vs. September 30, 1994 Net Change (Decrease)
Change 1995/1994 Per Share
<S> <C> <C> <C>
Net interest income $2,138 20.7% $ 2.11
Provision for loan losses (18) (11.5) (.01)
Other income 84 2.9 .08
Other expense 1,294 13.5 1.28
Income taxes 395 39.7 .40
Total increase in net income $ 551 22.4% $ .52
</TABLE>
Net Interest Income and Interest Rate Sensitivity
During the first nine months in 1995, the Registrant's net interest income
increased by $2,138,000 (20.7%) as compared with the net interest income for
the same period in 1994. Net interest income for the nine months ended
September 30, 1995, was $12,482,000 as compared with $10,344,000 for the nine
months ended September 30, 1994. The table which follows sets forth details
of average balances, interest income and expense and average rates for the
Registrant for 1995 and 1994. The 1995 figures have been annualized based on
the actual results through September 30, 1995. The annualized amounts are not
necessarily indicative of the actual amounts that are expected or that will
occur for the year ended December 31, 1995.
<PAGE>
As can be seen, annualized net interest margin is 3.98% in 1995 (on a tax
equivalent basis). The overall cost of interest bearing liabilities has been
79 basis points higher in 1995 than in 1994 and the yield on interest earning
assets has been 76 basis points higher in 1995 than in 1994.
Beginning in early 1994, economic activity and loan demand began to increase
significantly in the Registrant's market area. As the largest financial
institution in the area and the one with the most banking outlets, the
Registrant's loan totals have increased dramatically. The loan to deposit
ratio (a traditional measure of a bank's relative lending volume) of the
Registrant has increased from 63.9% at December 31, 1993 to 73.2% at September
30, 1995. This rapid growth in loans has caused net interest income to
increase because yields on loans are generally 200 to 300 basis points higher
than are the yields on the investment products they replace and/or the
incremental funding costs of the additional deposits or short term borrowings
that the Registrant has acquired to fund the loan growth.
As a result of an active asset/liability management effort, this loan growth
has not added appreciably to the amount of interest rate or liquidity risk
associated with the Registrant's operations.
<PAGE>
Distribution of Consolidated Assets, Liabilities, and Stockholder's Equity
Interest Rates and Interest Differential (dollars in thousands)
<TABLE>
<CAPTION>
Nine Month Period Ended Year Ended
September 30, 1995 December 31, 1994
Avg Bal Int Avg Rate Avg Bal Int Avg Rate
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Investment certificates
of deposits $ 99 $ 10 10.24% $ 1,211 $ 51 4.21%
Due from banks-interest
bearing 1,622 93 5.83% 924 22 2.38%
Excess funds sold 4,926 283 5.73% 3,643 156 4.28%
Investment securities:
Taxable 117,214 7,119 6.07% 117,285 5,772 4.92%
Tax-exempt 12,879 750 8.82% 14,546 851 8.86%
Loans (net of unearned
income) 290,723 24,791 8.53% 243,166 19,576 8.05%
Total earning assets 427,463 33,046 7.82% 380,775 26,428 7.06%
NONEARNING ASSETS
Cash and due from banks 15,023 13,720
Premises and equipment 9,322 8,393
Other nonearning assets 12,637 9,150
Allowance for loan
losses (2,690) (2,354)
Total assets $461,755 $409,684
INTEREST BEARING LIABILITIES
Demand deposits $106,973 $ 2,844 2.66% $110,069 $ 2,764 2.51%
Savings deposits 41,929 1,140 2.72% 38,985 1,009 2.59%
Time deposits 199,548 10,647 5.34% 170,252 7,298 4.29%
Short-term borrowings 23,190 1,198 5.17% 13,103 471 3.59%
Long-term debt 7,699 575 7.46% 5,579 376 6.74%
Total interest-
bearing liabilities 379,339 16,404 4.32% 337,988 11,918 3.53%
NONINTEREST BEARING LIABILITIES
Demand deposits 45,231 37,527
Other liabilities 4,410 3,901
Stockholders' equity 32,775 30,268
Total liabilities
& equity $461,755 $409,684
Net interest earnings $16,642 $14,510
Net interest earnings as a
% of interest earning assets
on a full tax equivalent basis 3.98% 3.93%
</TABLE>
(1) Full tax equivalent yields on tax exempt securities have been calculated
using a 34% tax rate.
(2) Nonaccrual loans have been included in the average balances.
(3) Interest includes net loan fees.
<PAGE>
(4) 1995 interest income and expense amounts have been annualized based on
results through September 30, 1995. The annualized amounts are not
necessarily indicative of the actual amounts that are expected or that
will occur for the year ending December 31, 1995.
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).
<TABLE>
<CAPTION>
1995 Compared to 1994
Increase - (Decrease)
Total Rate/
Change Volume Rate Volume
<S> <C> <C> <C> <C>
INTEREST INCOME:
Investment certificates
of deposit $ (41) $ (47) $ 73 $ (67)
Due from banks-interest
bearing 71 16 31 24
Excess funds sold 127 55 53 19
Investment securities:
Taxable 1,347 (3) 1,351 (1)
Tax-exempt (101) (98) (3) -
Loans 5,215 3,829 1,159 227
Total interest income 6,618 3,752 2,664 202
INTEREST EXPENSE:
Demand deposits 80 (78) 163 (5)
Savings deposits 131 76 51 4
Time deposits 3,349 1,256 1,786 307
Short-term borrowings 727 363 205 159
Long-term debt 199 143 41 15
Total interest expense 4,486 1,760 2,246 480
NET INTEREST EARNINGS $ 2,132 $ 1,992 $ 418 $ (278)
</TABLE>
(1) 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.
(2) 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.
(3) There were no foreign activities by the Registrant during the nine month
periods ending September 30, 1995 and September 30, 1994.
(4) 1995 interest income and expense amounts have been annualized based on
results through September 30, 1995. The annualized amounts are not
necessarily indicative of the actual amounts that are expected or that
will occur for the year ending December 31, 1995.
<PAGE>
The following table is the Registrant's "static gap" schedule as of
September 30, 1995. 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.
<TABLE>
<CAPTION>
(dollars in thousands) Number of Months Until Next Repricing Opportunity
0-1 1-3 3-6 6-12 12+
<S> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Investment certificates
of deposits $ - $ - $ - $ - $ 99
Due from banks-
interest bearing 795 - - - -
Excess funds sold 10,250 - - - -
Investment securities:
Taxable 48,047 16,871 14,274 4,391 29,911
Tax-exempt - 373 192 196 11,835
Loans 36,547 21,395 32,832 29,969 187,819
Total $ 95,639 $ 38,639 $ 47,298 $ 34,556 $229,664
INTEREST BEARING LIABILITIES:
Savings and NOW accts $102,008 $ - $ - $ - $ -
Money market accounts 36,117 - - - -
Other time deposits 30,900 35,100 40,578 56,805 50,573
Short-term borrowings 7,000 16,620 4,500 500 6,500
Long-term debt 7,450 - - - -
Total $183,475 $ 51,720 $ 45,078 $ 57,305 $ 57,073
Periodic GAP $(87,836) $ (13,081) $ 2,220 $ (22,749) $172,591
Cumulative GAP $(87,836) $(100,917) $(98,697) $(121,446) $ 51,145
Gaps as a percent of
interest earning assets:
Periodic (19.7%) (2.9%) 0.5% (5.1%) 38.7%
Cumulative (19.7%) (22.6%) (22.1%) (27.2%) 11.5%
</TABLE>
<PAGE>
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.
<PAGE>
Investment Portfolio and Investment Transactions
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 September 30, 1995, and December 31, 1994. In
accordance with FAS 115, the unrealized gains, net of related taxes, in the
amount of $386,000 have been included in stockholders' equity at September 30,
1995.
Total investment securities designated as available-for-sale represented 49%
of the portfolio and held-to-maturity represented 51%. During the three
months ended September 30, 1995, neither available-for-sale nor held-to-
maturity investment securities were sold. During the three months ended
September 30, 1995, $3,000,000 held-to-maturity investment securities and
$2,050,000 available-for-sale investment securities were purchased.
The following table provides detailed information for investment securities
at September 30, 1995, (in thousands):
<TABLE>
<CAPTION>
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
U.S. Treasury securities and
obligations of U.S.
government corporations
and agencies $ 27,619 $ 242 $ 146 $ 27,715
Obligations of state and
political subdivisions 8,653 450 9 9,094
Mortgage backed securities 22,869 176 128 22,917
Other securities 2,105 - - 2,105
Total available-for-sale $ 61,246 $ 868 $ 283 $ 61,831
HELD-TO-MATURITY:
U.S. Treasury securities and
obligations of U.S.
government corporations
and agencies $ 45,812 $ 188 $ 664 $ 45,336
Obligations of state and
political subdivisions 3,984 81 13 4,052
Mortgage backed securities 14,463 62 126 14,399
Other securities - - - -
Total held-to-maturity $ 64,259 $ 331 $ 803 $ 63,787
Total $125,505 $ 1,199 $ 1,086 $125,618
</TABLE>
<PAGE>
Information related to investment securities at December 31, 1994 follows (in
thousands):
<TABLE>
<CAPTION>
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
U.S. Treasury securities and
obligations of U.S.
government corporations
and agencies $ 34,358 $ - $ 970 $ 33,388
Obligations of state and
political subdivisions 9,641 240 160 9,721
Mortgage backed securities 24,751 29 804 23,976
Other securities 1,888 - - 1,888
Total available-for-sale $ 70,638 $ 269 $ 1,934 $ 68,973
HELD-TO-MATURITY:
U.S. Treasury securities and
obligations of U.S.
government corporations
and agencies $ 42,312 $ 6 $ 1,760 $ 40,558
Obligations of state and
political subdivisions 4,023 5 101 3,927
Mortgage backed securities 15,969 1 619 15,351
Other securities - - - -
Total held-to-maturity $ 62,304 $ 12 $ 2,480 $ 59,836
Total $132,942 $ 281 $ 4,414 $128,809
</TABLE>
The following table indicates the expected maturities of investment
securities classified as available-for-sale and held-to-maturity at September
30, 1995, (dollars in thousands) and their weighted average yields:
<TABLE>
<CAPTION>
Available-for-Sale Investment Securities - Approximate Fair Value Maturing
One After 1 After 5 After
year through through ten
or less 5 years 10 years years Total
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government corporations
and agencies $11,526 $13,674 $ 2,515 $ - $27,715
Mortgage-backed securities 906 14,542 4,111 3,358 22,917
Obligations of state and
political subdivisions 194 6,844 2,056 - 9,094
Other securities - - - 2,105 2,105
Total available-for-sale
securities $12,626 $35,060 $ 8,682 $ 5,463 $61,831
Weighted average yield 5.31% 6.06% 7.16% 8.67%
Full tax equivalent yield 5.35% 6.61% 7.96% 8.67%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Held-to-Maturity Investment Securities - Book Value Maturing
One After 1 After 5 After
year through through ten
or less 5 years 10 years years Total
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government corporations
and agencies $ 4,800 $34,030 $ 6,982 $ - $45,812
Mortgage-backed securities 1,052 11,870 572 969 14,463
Obligations of state and
political subdivisions 356 2,325 1,303 - 3,984
Total held-to-maturity
securities $ 6,208 $48,225 $ 8,857 $ 969 $64,259
Weighted average yield 5.35% 5.02% 5.19% 6.46%
Full tax equivalent yield 5.51% 5.14% 5.58% 6.46%
</TABLE>
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.
Except for U.S. Treasury securities and obligations of U.S. Government
corporations and agencies, no investment in a single issuer exceeds 10% of
stockholders' equity at September 30, 1995.
Other securities includes stock in the Federal Home Loan Bank of Chicago
totaling $1,699,000 in 1995 and $507,000 in 1994.
<PAGE>
Loan Quality and Allowance for Loan Losses
The following tables provide information relating to the Registrant's loan
portfolio, risk elements within the portfolio and historical loan loss
experience.
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 no impaired loans as of September 30, 1995.
Loan Portfolio
The composition of the Registrant's loan portfolio as of September 30, 1995,
December 31, 1994 and 1993 is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Commercial, financial
and agricultural $ 66,887 $ 61,520 $ 50,353
Real estate - mortgage 211,658 195,524 151,916
Installment loans to individuals 27,930 22,294 16,360
Other 2,087 2,815 4,590
Total loans $308,562 $282,153 $223,219
</TABLE>
The following table presents the aggregate balances of loans outstanding as
of September 30, 1995, by maturities, based on remaining scheduled,
contractual repayments of principal (in thousands):
<TABLE>
<CAPTION>
Over 1
One year through Over
or less 5 years 5 years Total
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 48,922 $ 15,495 $ 2,470 $ 66,887
Real estate - mortgage 41,854 108,187 61,617 211,658
Installment loans to
individuals 6,297 20,655 978 27,930
Other 467 1,021 599 2,087
Total loans $ 97,540 $145,358 $ 65,664 $308,562
</TABLE>
As of September 30, 1995, loans with maturities over one year were comprised
of $164,275,000 in fixed rate loans and $46,747,000 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.
<PAGE>
As of September 30, 1995, the Registrant had loan concentrations in
agricultural industries of 12.8% 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 September 30, 1995.
Non-Performing Loans
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."
<TABLE>
<CAPTION>
Nonperforming Loans
(in thousands)
September 30, December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans $ 380 $ 393 $ 497 $ 685 $ 348
Loans past due ninety days
or more and still accruing 232 509 248 585 418
Restructured loans which are
performing in accordance
with revised terms 634 772 307 383 678
</TABLE>
Interest income that would have been reported in 1995 if nonaccrual and
restructured loans had been performing totaled $111,500 for the nine month
period ended September 30, 1995. Interest income relating to these non-
performing loans that was included in income totaled $16,500 for the same
period.
Allowance for Loan Losses
The provision for loan losses charged to expense was $138,000 for the nine
months ended September 30, 1995, as compared to $156,000 for the nine months
ended September 30, 1994, an $18,000 (11.5%) decrease. This decrease was due
to reduced loan charge offs, a lower level of problem loans and more favorable
economic conditions which allowed the Registrant to reduce the provision and
at the same time improve reserve coverage.
<PAGE>
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 $2,788,000 (.90% of total loans) at
September 30, 1995, and $2,608,000 (.93% of total loans) at December 31, 1994.
The allowance for loan losses equaled 223.8% and 155.8% of total non-
performing loans at September 30, 1995 and December 31, 1994, respectively.
A summary of loan loss experience for the periods indicated is as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Nine
months ended
September 30, Year ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Average loans
Outstanding, net
of unearned income $290,723 $243,166 $214,408 $178,919 $127,918
Allowance-
beginning of year 2,608 2,110 1,906 1,566 1,505
Balance of
acquired subsidiary - 343 - 350 -
Charge-offs:
Commercial, financial
and agricultural 17 29 140 298 273
Real estate-mortgage 9 28 241 350 11
Installment 30 120 86 139 132
Total charge-offs 56 177 467 787 416
Recoveries:
Commercial, financial
and agricultural 69 98 150 167 57
Real estate-mortgage - 21 3 18 -
Installment 29 45 26 49 33
Total recoveries 98 164 179 234 90
Net charge-offs
(recoveries) (42) 13 288 553 326
Provision for loan losses 138 168 492 543 387
Allowance-end of period $ 2,788 $2,608 $ 2,110 $ 1,906 $ 1,566
Ratio of net charge-offs
(recoveries) to
average loans (.01%) .01% .13% .31% .25%
Ratio of allowance
for loan losses to
loans outstanding
(less unearned interest)
at end of period .90% .93% .95% .89% 1.17%
</TABLE>
<PAGE>
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.
The allowance for loan losses, in management's judgment, would be allocated
as follows to cover potential loan losses (in thousands):
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
Allowance % of Allowance % of
for loans for loans
loan to total loan to total
losses loans losses loans
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 1,536 21.7% $ 1,481 21.8%
Real estate-mortgage 311 68.6% 427 69.3%
Installment 131 9.1% 100 7.9%
Other - .6% - 1.0%
Total allocated 1,978 2,008
Unallocated 810 N/A 600 N/A
Allowance at end of
reported period $ 2,788 100.0% $ 2,608 100.0%
</TABLE>
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.
<PAGE>
Deposit Base
The following table details the year-to-date average deposits for the
indicated periods and weighted average rates at September 30, 1995, December
31, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
September 30, December 31, December 31,
1995 1994 1993
Weighted Weighted Weighted
Average Average Average
Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
Demand deposits:
Non-interest bearing $ 45,231 - $ 37,527 - $ 31,746 -
Interest bearing 106,973 2.66% 110,069 2.51% 107,896 2.68%
Savings 41,929 2.72% 38,985 2.59% 35,860 2.88%
Time deposits 199,548 5.34% 170,252 4.29% 168,724 4.39%
Total average deposits $393,681 3.72% $356,833 3.10% $344,226 3.29%
</TABLE>
The following table sets forth the maturity of time certificates of deposit
of $100,000 or more at September 30, 1995 (in thousands):
<TABLE>
<CAPTION>
Balance
<S> <C>
3 months or less $ 25,929
Over 3 through 6 months 6,965
Over 6 through 12 months 6,579
Over 12 months 5,454
Total $ 44,927
</TABLE>
There were no time deposits of $100,000 or more that were issued by foreign
offices at September 30, 1995.
<PAGE>
Short-term Borrowings
Short-term borrowings at September 30, 1995, December 31, 1994 and December
31, 1993 are shown (in thousands) in the following table:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Securities sold under agreement
to repurchase $18,620 $15,590 $ 9,630
Federal Home Loan Bank advances 16,500 3,500 -
Federal funds purchased - 500 -
Total short-term borrowing $35,120 $19,590 $ 9,630
</TABLE>
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 September 30,
1995, December 31, 1994 and December 31, 1993 is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Maximum amount of borrowings
outstanding at any month end $36,770 $23,460 $11,390
Average amount outstanding 23,190 13,103 8,843
Weighted average interest
rate-end of period 5.22% 3.55% 2.91%
Weighted average interest
rate during the year 5.17% 3.59% 2.96%
</TABLE>
Other Income
Other income increased $84,000 or 2.9% to $2,946,000 in the first nine
months of 1995 as compared with $2,862,000 in the same period of 1994. The
following table sets forth information regarding the major components of and
changes in other income (dollars in thousands).
<TABLE>
<CAPTION>
Nine months ended Change
September 30, 1995/1995
1995 1994 Amount Percent
<S> <C> <C> <C> <C> <C>
Trust fees $ 845 $ 839 $ 6 .7%
Brokerage and annuity fees 132 293 (161) (54.9)
Service charges 1,155 1,070 85 7.9
Securities gains, net - (25) 25 100.0
Mortgage banking income 167 134 33 24.6
Other 647 551 96 17.4
Total other income $2,946 $2,862 $ 84 2.9%
</TABLE>
<PAGE>
Revenues from brokerage and annuity fees have declined significantly in 1995
as compared to 1994. During 1994, yields on annuity products were higher,
sometimes by as much as 200 basis points, than rates offered on traditional
certificates of deposits. During late 1994 and throughout 1995 however, this
rate disparity has disappeared as CD yields have increased and annuity yields
have decreased. Accordingly, consumer preference has shifted away from the
annuity product. Management does not anticipate that annuity sales will
increase significantly from their 1995 levels until such time as these
products again attain a rate advantage over certificates of deposits.
Service charges on deposits consists of fees on both interest bearing and
non-interest bearing accounts and charges for other items, including
insufficient funds, overdrafts and stop payment requests. Service charges on
deposits increased $85,000 or 7.9% for the nine month period ended September
30, 1995 as compared with the same period in 1994. During mid-1994, the
Registrant adopted a revised schedule for such fees which has resulted in most
of the increase.
Other income for the third quarter of 1995 increased $145,000 (17.4%) to
$979,000 from $834,000 in the third quarter of 1994. This increase consisted
primarily of service charges ($21,000), mortgage banking income ($34,000), a
reduction of security losses ($46,000) and other income ($44,000).
Other Expense
Other expense increased $1,294,000 or 13.5% to $10,894,000 in the first nine
months of 1995 as compared with $9,600,000 in the first nine months of 1994.
Most of this increase was attributable to the acquisition of Downstate
Bancshares, Inc. that occurred early in the fourth quarter of 1994. Other
expense as a percentage of average assets remained stable at 2.6% during the
first nine months of 1995 and 1994. The following table sets forth
information regarding the major components of and changes in other expense
(dollars in thousands).
<TABLE>
<CAPTION>
Nine months ended Change
September 30, 1995/1994
1995 1994 Amount Percent
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $5,634 $5,141 $ 493 9.6%
Occupancy, furniture and
equipment, net 1,702 1,448 254 17.5
Federal deposit insurance
premiums 495 584 (89) (15.2)
Other 3,063 2,427 636 26.2
Total other expense $10,894 $9,600 $ 1,294 13.5%
</TABLE>
Salaries and employee benefits, the largest component of other expense,
increased $493,000 or 9.6% during the first nine months of 1995 as compared
with the same period in 1994. The increase was due to a rise in the number of
employees on staff (as a result of the aforementioned acquisition) during the
comparable periods and regular merit increases which affected payroll
beginning January 1, 1995.
<PAGE>
Net occupancy, furniture and equipment expenses increased $254,000 or 17.5%
during the first nine months of 1995 compared with the same period in 1994.
This increase was attributable in part to the additional buildings and fixed
assets acquired as a result of the acquisition in the fourth quarter of 1994
and in part to the remodeling of the Mattoon and Charleston banking
facilities. The opening of the Arcola Branch in early September, 1995,
contributed slightly to this overall increase.
FDIC insurance premiums decreased $89,000 or (15.2%) in the nine months of
1995 compared with 1994. The FDIC amended its regulations to change the range
of deposit insurance assessments to members of the Bank Insurance Fund. This
change in assessment rates was applied retroactively to June 1, 1995 and the
Bank received a refund of $170,000 in the third quarter. Effective June 1,
1995, the Bank has an assessment rate of $.04 per $100 of deposits. Members
of the Savings Association Insurance Fund, such as Heartland, will continue to
pay assessments rates of $.23 per $100 of deposits. Refer to the "Recent
Regulatory Developments" on page 29 for more information.
Other expense increased $636,000 or 26.2% for the first nine months of 1995
as compared with the same period of 1994. This increase was attributable to a
$95,000 or 14.9% increase in advertising, donations and public relations
expense and an increase in office supplies expense of $118,000 or 18.6%.
Amortization expense increased $241,000 or 37.9% due to the additional
goodwill from the Downstate acquisition.
Other expense for the third quarter of 1995 totaled $3,571,000 as compared
to $3,269,000 during the third quarter of 1994. This increase of $302,000 or
9.2% consisted of higher levels in salaries and benefits of $181,000,
occupancy expense of $76,000 and other of $184,000. Offsetting this increase
was a decrease in the FDIC premiums of $139,000 attributable to the reduction
of the premium rate.
Income Taxes
The Registrant recorded income tax expense of $1,390,000 for the nine months
ended September 30, 1995, as compared to $995,000 for the same period in 1994.
The effective income tax rate was 31.6% for the nine months ended September
30, 1995, as compared with 28.8% in the same period in 1994. Tax exempt
interest as a percentage of total interest income declined in 1995, which
contributed to the slightly higher tax rates. Income tax expense for the
third quarter of 1995 amounted to $532,000 as compared to $341,000 in the
third quarter of 1994. The effective tax rate for the third quarter of 1995
was 32.7% as compared to 29.1 for the same period in 1994.
<PAGE>
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
and nine month periods ended September 30, 1995 and 1994 follows (in
thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C> <C>
Cash flow provided by (used in):
Operating activities $ (308) $ 182 $ 3,037 $ 4,699
Investing activities (10,165) (7,669) (19,738) (14,294)
Financing activities 14,990 16,284 24,153 11,556
Total $ 4,517 $ 8,797 $ 7,452 $ 1,961
</TABLE>
The Registrant's need for liquidity is influenced by several factors. The
increased loan demand brought on by the economic expansion in the Registrant's
market area and management's strategic objective of originating and retaining
loans in Heartland's portfolio. 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 September 30, 1995, the Registrant's
leverage ratio was 6.00%.
<PAGE>
A tabulation of the Registrant's and its subsidiaries' risk-based capital
ratios as of September 30, 1995, follows:
<TABLE>
<CAPTION>
Tier one Total
risk-based risk-based
capital ratio capital ratio
<S> <C> <C>
First Mid-Illinois Bancshares, Inc. 10.08% 11.07%
First Mid-Illinois Bank & Trust, N.A. 11.87% 12.93%
Heartland Savings Bank 15.62% 16.27%
</TABLE>
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.
Operating Ratios
The following table presents selected financial ratios for the nine months
ended September 30, 1995 (annualized) and the years ended December 31, 1994
and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Return on average total assets .87% .83% .85%
Return on average total stockholders'
equity 12.23% 11.35% 11.80%
Dividend payout ratio 17.86% 20.89% 21.40%
Average total equity to
average assets ratio 7.10% 7.38% 7.17%
</TABLE>
Recent Regulatory Developments
On August 8, 1995, the FDIC amended its regulations to change the range of
deposit insurance assessments charged to members of the Bank Insurance Fund
(the "BIF"), such as the Bank, from the then-prevailing range of .23% to .31%
of deposits, to a range of .04% to .31% of deposits. The change in FDIC
assessments has significantly decreased the amount of deposit insurance
assessments that well-capitalized and well-managed BIF insured institutions,
such as the Bank, pay to the FDIC. Additionally, because the change in BIF
assessments was applied retroactively to June 1, 1995, BIF-member
institutions, including the Bank, became entitled to a refund of the
difference between the amount of assessments previously paid at the higher
assessment rates for the period from June 30, 1995 through September 30, 1995,
and the amount that would have been paid for that period at the new rates.
During the third quarter of 1995, the Bank received a refund of $170,000 on
account of such assessment overpayments. The FDIC did not, however, change
the assessment rates charged to members of the Savings Association Insurance
Fund (the "SAIF"), such as Heartland, and SAIF insured institutions continue
to pay assessments ranging from .23% to .31% of deposits. As a result of the
change in the assessment rates charged to BIF-member institutions, well-
capitalized and well-managed SAIF members, such as Heartland, pay
significantly higher deposit insurance assessments than well-
capitalized and well-managed BIF members, such as the Bank.
<PAGE>
The FDIC was able to change the range for BIF-member deposit insurance
assessments to their current levels because the ratio of the insurance
reserves of the BIF to total BIF insured deposits equals or exceeds the
statutorily designated reserve ratio of 1.25%. Because the SAIF does not meet
this designated reserve ratio, the FDIC is prohibited by federal law from
reducing the deposit insurance assessments charged to SAIF-member institutions
to the same levels currently charged BIF-member institutions. Legislative
proposals pending before the Congress would recapitalize the SAIF to the
designated reserve ratio by imposing a special assessment against SAIF insured
institutions, payable January 1, 1996, sufficient in the aggregate to increase
the ratio of the insurance reserves of the SAIF to total SAIF insured deposits
to 1.25%. It is anticipated that this special assessment, if enacted as
proposed, would equal approximately .85% of the deposits of each SAIF insured
institution. At such time as the SAIF meets the designated reserve ration of
1.25%, the assessment rates charged SAIF-member institutions can be reduced to
levels consistent with those charged to BIF-member institutions.
Legislation has also been introduced in the Congress that would, among other
things, require federal thrift institutions to convert to state or national
banks and merge the BIF and the SAIF into a single deposit insurance fund
administered by the FDIC. At this time, it is not possible to predict
whether, or in what form, any such legislation will be adopted or the impact
such legislation would have on the Company or its subsidiaries.
<PAGE>
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
September 30, 1995.
<PAGE>
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: November 10, 1995 /s/ Daniel E. Marvin, Jr.
____________________ _____________________________________
Daniel E. Marvin, Jr.
President and Chief Executive Officer
Date: November 10, 1995 /s/ William S. Rowland
____________________ ____________________________________
William S. Rowland
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<PERIOD-TYPE> 9-MOS
<CAPTION>
<S> <C>
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 14,120,000
<INT-BEARING-DEPOSITS> 795,000
<FED-FUNDS-SOLD> 10,250,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 64,259,000
<INVESTMENTS-CARRYING> 61,246,000
<INVESTMENTS-MARKET> 61,831,000
<LOANS> 308,562,000
<ALLOWANCE> 2,788,000
<TOTAL-ASSETS> 480,208,000
<DEPOSITS> 398,870,000
<SHORT-TERM> 35,120,000
<LIABILITIES-OTHER> 3,818,000
<LONG-TERM> 7,450,000
<COMMON> 3,549,000
0
3,100,000
<OTHER-SE> 28,325,000
<TOTAL-LIABILITIES-AND-EQUITY> 480,208,000
<INTEREST-LOAN> 18,593,000
<INTEREST-INVEST> 5,902,000
<INTEREST-OTHER> 290,000
<INTEREST-TOTAL> 24,785,000
<INTEREST-DEPOSIT> 10,973,000
<INTEREST-EXPENSE> 12,303,000
<INTEREST-INCOME-NET> 12,482,000
<LOAN-LOSSES> 138,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,894,000
<INCOME-PRETAX> 4,396,000
<INCOME-PRE-EXTRAORDINARY> 4,396,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,006,000
<EPS-PRIMARY> 3.15
<EPS-DILUTED> 2.97
<YIELD-ACTUAL> 3.98
<LOANS-NON> 380,000
<LOANS-PAST> 232,000
<LOANS-TROUBLED> 634,000
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<CHARGE-OFFS> 56,000
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<ALLOWANCE-CLOSE> 2,788,000
<ALLOWANCE-DOMESTIC> 2,788,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 810,000
<PAGE>
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