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.
<PAGE>
FORM 10-Q
For the Quarter Ended
March 31, 1996
<TABLE>
INDEX
<S> <S> <C>
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
</TABLE>
<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 1995 Annual Report to Stockholders.
<PAGE>
<TABLE>
FIRST MID-ILLINOIS BANCSHARES, INC.
(unaudited) (dollars in thousands, except per share data)
March 31, December 31,
1996 1995
<S> <C> <C>
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.
</TABLE>
<PAGE>
<TABLE>
FIRST MID-ILLINOIS BANCSHARES, INC.
Three months ended March 31, 1996 and 1995
(unaudited) (in thousands, except per share data)
1996 1995
<S> <C> <C>
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.
</TABLE>
<PAGE>
<TABLE>
FIRST MID-ILLINOIS BANCSHARES, INC.
Three months ended March 31, 1996 and 1995
(unaudited) (in thousands, except per share data)
1996 1995
<S> <C> <C>
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.
</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.
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:
<TABLE>
Three months ended
March 31,
1996 1995
<S> <C> <C>
Primary 898,152 881,616
Fully Diluted 1,023,454 1,006,918
</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.
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>
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.
<PAGE>
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):
<TABLE>
Three months ended March 31, 1996 Total Percent Increase/
vs. March 31, 1995 Net Change (Decrease)
Change 1996/1995 Per Share
<S> <C> <C> <C>
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
</TABLE>
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.
<PAGE>
Distribution of Assets, Liabilities and Stockholders' Equity
Interest Rates and Interest Differential
<TABLE>
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
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
(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.
<PAGE>
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>
1996 Compared to 1995
Increase - (Decrease)
Total Rate/
Change Volume Rate Volume
<S> <C> <C> <C> <C>
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
</TABLE>
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.
<PAGE>
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.
<TABLE>
(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 $ - $ - $ - $ - $ 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%
</TABLE>
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.
<PAGE>
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.
<PAGE>
The following table provides detailed information for investment securities
at March 31, 1996 and December 31, 1995, (in thousands):
<TABLE>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
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
</TABLE>
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.
<PAGE>
<TABLE>
Book Value Maturing Investment Securities
One After 1 After 5 After
year through through ten
or less 5 years 10 years years Total
<S> <C> <C> <C> <C> <C>
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% -
</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.
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.
<PAGE>
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):
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
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
</TABLE>
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):
<TABLE>
Over 1
One year through Over
or less 5 years 5 years Total
<S> <C> <C> <C> <C>
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
</TABLE>
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.
<PAGE>
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."
<PAGE>
<TABLE>
Nonperforming Loans
(in thousands)
March 31, December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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.
<PAGE>
Analysis of the Allowance for Loan Losses
A summary of loan loss experience for the periods indicated is as follows
(dollars in thousands):
<TABLE>
Three
months ended
March 31, Year ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
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%
</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.
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):
<TABLE>
March 31, 1996 December 31, 1995
Allowance % of Allowance % of
for loans for loans
loan to total loan to total
losses loans losses loans
<S> <C> <C> <C> <C>
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%
</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>
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:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
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%
</TABLE>
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):
<TABLE>
March 31, December 31, December 31,
1996 1995 1994
Weighted Weighted Weighted
Average Average Average
Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
The following table sets forth the maturity of time deposits of $100,000 or
more at March 31, 1996 (in thousands):
<TABLE>
Time Deposits Other Total
<C> <C> <C> <C>
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
</TABLE>
There were no time deposits of $100,000 or more that were issued by foreign
offices at March 31, 1996.
<PAGE>
Other Borrowings
Other borrowings at March 31, 1996, December 31, 1995 and December 31, 1994
are shown (in thousands) in the following table:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
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
</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 March 31, 1996
(three months), December 31, 1995 (twelve months) and December 31, 1994 is as
follows (in thousands):
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
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%
</TABLE>
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).
<TABLE>
Three months ended Change
March 31, 1996/1995
1996 1995 Amount Percent
<S> <C> <C> <C> <C>
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%
</TABLE>
<PAGE>
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).
<TABLE>
Three months ended Change
March 31, 1996/1995
1996 1995 Amount Percent
<S> <C> <C> <C> <C>
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%)
</TABLE>
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.
<PAGE>
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.
<PAGE>
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):
<TABLE>
Three months ended
March 31,
1996 1995
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
Tier one Total
risk-based risk-based
capital ratio capital ratio
<S> <C> <C>
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%
</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.
<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 March 31, 1996.
<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: 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
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 16804
<INT-BEARING-DEPOSITS> 585
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 121045
<INVESTMENTS-CARRYING> 3448
<INVESTMENTS-MARKET> 3431
<LOANS> 307242
<ALLOWANCE> 2807
<TOTAL-ASSETS> 467478
<DEPOSITS> 400823
<SHORT-TERM> 16520
<LIABILITIES-OTHER> 3439
<LONG-TERM> 10450
0
3100
<COMMON> 3601
<OTHER-SE> 29545
<TOTAL-LIABILITIES-AND-EQUITY> 467478
<INTEREST-LOAN> 6495
<INTEREST-INVEST> 1859
<INTEREST-OTHER> 77
<INTEREST-TOTAL> 8431
<INTEREST-DEPOSIT> 3786
<INTEREST-EXPENSE> 4206
<INTEREST-INCOME-NET> 4225
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 3542
<INCOME-PRETAX> 1876
<INCOME-PRE-EXTRAORDINARY> 1876
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1176
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.15
<YIELD-ACTUAL> 7.86
<LOANS-NON> 544
<LOANS-PAST> 558
<LOANS-TROUBLED> 566
<LOANS-PROBLEM> 1110
<ALLOWANCE-OPEN> 2814
<CHARGE-OFFS> 24
<RECOVERIES> 17
<ALLOWANCE-CLOSE> 2807
<ALLOWANCE-DOMESTIC> 2807
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 737
</TABLE>
