<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 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: 0-26184
FIRST MUTUAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 37-1339075
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
135 EAST MAIN STREET, DECATUR, ILLINOIS 62523
(Address of principle executive offices)
Registrant's telephone number, including area code: (217) 429-2306
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Former name, former address and former fiscal year,
if changed since last report
Indicate by check X whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ----
Yes X No
--- ----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: There were 4,173,600 shares
of the Registrant's common stock outstanding as of September 30, 1996. Included
were 329,000 unearned ESOP shares.
<PAGE>
FIRST MUTUAL BANCORP, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements........................................ 1
Consolidated Statements of Financial Condition as of
September 30, 1996, and December 31,1995............... 2
Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1996 and 1995.............. 3
Consolidated Statements of Changes in Stockholders' Equity
for the Nine Months Ended September 30, 1996........... 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1996 and 1995 .................... 5
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..............................................14
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Page 1
<PAGE>
FIRST MUTUAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $2,762 $3,005
Interest-bearing deposits with financial institutions 7,323 13,735
Securities held-to-maturity
(Estimated fair value: September 30, 1996 $21,032) 21,021 --
(Estimated fair value: December 31, 1995 $20,075) -- 19,953
Securities available for sale 4,956 9,038
Loans held for sale 773 1,447
Loans receivable, net 266,702 218,179
Federal Home Loan Bank stock 2,400 1,920
Accrued interest receivable 1,832 1,944
Foreclosed real estate, net of allowance for losses 77 51
Premises and equipment 3,418 2,955
Cash surrender value of life insurance 3,176 3,070
Other assets 1,941 379
--------- ---------
TOTAL ASSETS $316,381 $275,676
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $204,082 $192,468
Advances from borrowers for taxes and insurance 733 1,411
Advances from Federal Home Loan Bank 44,600 4,100
Accrued expenses and other liabilities 3,900 6,169
-------- ---------
TOTAL LIABILITIES 253,315 204,148
STOCKHOLDERS' EQUITY
Common stock $.10 par value;
8,000,000 shares authorized;
issued 4,700,000 shares 470 470
Additional paid in capital 45,061 44,980
Unearned ESOP shares (3,290) (3,572)
Unearned MRP shares (1,609) --
Retained earnings, substantially restricted 29,430 29,604
Treasury Stock at cost - 526,400 shares (6,980) --
Unrealized gain (loss) on securities available for sale,
net of tax (16) 46
-------- ---------
TOTAL STOCKHOLDERS' EQUITY 63,066 71,528
-------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $316,381 $275,676
-------- ---------
-------- ---------
NUMBER OF SHARES OUTSTANDING, NET OF UNEARNED
ESOP SHARES 3,844,600 4,342,800
BOOK VALUE PER SHARE $16.40 $16.47
</TABLE>
Page 2
<PAGE>
FIRST MUTUAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
----------------------------------------- -----------------------------------------
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Interest income
Loans receivable
First mortgage loans $12,449 $11,455 $4,251 $3,903
Consumer and other loans 1,201 341 595 120
Commercial loans 344 49 124 28
Investment securities 1,289 1,027 411 413
Other interest-earning assets 553 563 162 357
------- ------- ------ ------
Total interest income 15,836 13,435 5,543 4,821
INTEREST EXPENSE
Deposits 7,174 6,854 2,489 2,358
Federal Home Loan Bank advances 851 234 471 ---
Other 19 --- 1 ---
------- ------- ------ ------
Total interest expense 8,044 7,088 2,961 2,358
------- ------- ------ ------
Net interest income 7,792 6,347 2,582 2,463
Provision for loan losses 75 --- 25 ---
------- ------- ------ ------
Net interest income after provision
for loan losses 7,717 6,347 2,557 2,463
Noninterest income
Gain on sales of loans 154 59 38 28
Deposit service fee income 259 216 93 77
Loan servicing fees 92 85 31 29
Investment sales commissions 91 56 28 20
Other 194 202 66 69
------- ------- ------ ------
Total noninterest income 790 618 256 223
Noninterest expense
Compensation and benefits 3,367 2,268 1,514 804
Occupancy and equipment 606 472 228 168
SAIF deposit insurance premium 339 346 114 115
FDIC Special Assessment 1,314 --- 1,314 ---
Advertising and promotion 329 162 110 42
Data processing 310 262 112 82
Printing, postage, stationery, and supplies 235 165 104 61
Net expense on foreclosed real estate
operations 8 9 3 3
Net (gain) loss on sale of real estate
owned including provisions for losses 1 13 1 ---
Other 825 481 334 177
------- ------- ------ ------
Total noninterest expense 7,334 4,178 3,834 1,452
------- ------- ------ ------
Income (loss) before income taxes 1,173 2,787 (1,021) 1,234
Income taxes (benefit) 449 1,000 (416) 455
------- ------- ------ ------
Net income (loss) $724 $1,787 ($605) $779
------- ------- ------ ------
------- ------- ------ ------
Average number of shares outstanding
Net of unearned ESOP shares 4,243,373 N/A 4,099,059 4,324,204
Average number of shares outstanding
Net of unearned ESOP shares
and outstanding stock options 4,251,926 N/A 4,124,719 4,324,204
Earnings (loss) per common share $.17 N/A ($.14) $.18
Earnings (loss) per common share -
fully diluted $.17 N/A ($.14) $.18
Dividends per common share based
on gross outstanding shares $.22 N/A $.08 $.07
</TABLE>
Page 3
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FIRST MUTUAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED
RETAINED GAIN (LOSS) ON
ADDITIONAL UNEARNED UNEARNED EARNINGS - SECURITIES
COMMON PAID IN ESOP MRP SUBSTANTIALLY TREASURY AVAILABLE
STOCK CAPITAL SHARES SHARES RESTRICTED STOCK FOR SALE TOTAL
------ ---------- -------- -------- ------------- -------- -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $ -- $ -- $ -- $ -- $23,421 $ -- $ -- $23,421
Net income -- -- -- -- 2,658 -- -- 2,658
------ ------ ------ ------ -------- ------ ------ -------
Balance at December 31, 1993 -- -- -- -- 26,079 -- -- 26,079
Net income -- -- -- -- 1,732 -- 1,732
------ ------ ------ ------ -------- ------- ------ -------
Balance at December 31, 1994 -- -- -- -- 27,811 -- -- 27,811
June 30, 1995 stock offering 470 44,930 (3,760) -- -- -- -- 41,640
ESOP shares earned
(7/1/95 - 12/31/95) -- 50 188 -- -- -- -- 238
Net income (1/1/95 - 12/31/95) -- -- -- -- 2,398 -- -- 2,398
Unrealized gain on securities
available for sale, net of tax -- -- -- -- -- -- 46 46
Cash dividends declared -- -- -- -- (605) -- -- (605)
------ ------ ------ ------ -------- ------ ------ ------
Balance at December 31, 1995 470 44,980 (3,572) -- 29,604 -- 46 71,528
ESOP Shares Earned
(1/1/96 - 9/30/96) -- 76 282 -- -- -- - 358
Common Stock Purchased -- -- -- -- -- (9,079) -- (9,079)
MRP Shares Awarded -- -- -- (2,099) -- 2,099 -- --
MRP Shares Earned
(1/1/96 - 9/30/96) -- -- -- 490 -- -- -- 490
Net Income
(1/1/96 - 9/30/96) -- -- -- -- 724 -- -- 724
Cash dividends declared -- 5 -- -- (898) -- -- (893)
Unrealized gain (loss) on
Securities net of tax -- -- -- -- -- -- (62) (62)
------ ------- -------- -------- ------- -------- ----- -------
Balance at September 30, 1996 $470 $45,061 ($3,290) ($1,609) $29,430 ($6,980) ($16) $63,066
------ ------- -------- -------- ------- -------- ----- -------
------ ------- -------- -------- ------- -------- ----- -------
</TABLE>
Page 4
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FIRST MUTUAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------------------
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $724 $1,787
Adjustments to reconcile net income to
net cash from operating activities
Depreciation and amortization 269 205
Amortization of premiums and
discounts on mortgaged-backed
and investment securities, net 58 77
ESOP Compensation 358 114
MRP Compensation 490 --
Origination of loans held for sale (10,326) (8,705)
Proceeds from sale of loans 11,154 7,889
Change in net deferred loan
origination costs (162) (35)
Change in deferred income taxes 74 40
Provision for loan losses 75 --
Provision for losses on foreclosed
real estate -- 8
Net (gain) loss on sales of investment securities 4 --
Net (gain) loss on sales of loans (154) (59)
Federal Home Loan Bank stock dividends -- (29)
Net (gain) loss on sale of foreclosed
real estate 1 5
Change in
Accrued interest receivable 112 (540)
Cash surrender value of
life insurance (106) (109)
Other assets (1,620) 186
Accrued expenses and other
liabilities (2,570) 422
--------- --------
Net cash provided by (used in)
operating activities (1,619) 1,256
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in loans receivable (36,074) 829
Proceeds from maturity of investment
securities - Held to Maturity 13,465 15,500
Proceeds from maturity of investment securities
Available for Sale 7,006 --
Purchase of investment securities - Held to Maturity (14,598) (18,453)
Purchase of investment securities - Available for Sale (3,022) (3,032)
Investments in
Loans purchased (12,450) (10,125)
Federal Home Loan Bank stock (480) --
Premises and equipment (708) (147)
Foreclosed real estate (11) (16)
</TABLE>
Page 5
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------------
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES (CONTINUED)
Net (increase) decrease in interest-bearing
deposits with financial institutions $6,412 ($1,065)
Proceeds from sales of foreclosed
real estate 72 147
-------- --------
Net cash used in
investing activities (40,388) (16,362)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 11,614 (6,955)
Net change in advances from
Federal Home Loan Bank 40,500 (19,600)
Net decrease in advances from
borrowers for taxes and insurance (678) (568)
Proceeds from stock offering -- 41,640
Purchase of Treasury Stock (9,079) --
Dividends Paid (593) --
-------- --------
Net cash provided by
financing activities 41,764 14,517
-------- --------
Net decrease in cash and
cash equivalents (243) (589)
Cash and cash equivalents at beginning of period 3,005 2,180
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,762 $1,591
-------- --------
-------- --------
Supplemental disclosures of cash flow
information
Cash paid for
Interest $7,842 $6,884
Income taxes 998 883
Transfers from loans to real estate
acquired through foreclosure 88 94
Real estate owned sales financed
through loan origination -- 16
</TABLE>
Page 6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The financial information of First Mutual Bancorp, Inc. (the "Company") included
herein is unaudited; however, such information reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim periods.
The financial information has been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include
all the information and footnotes required by generally accepted accounting
principles for complete financial statements.
The results of the interim periods ended September 30, 1996 are not necessarily
indicative of the results expected for the year ending December 31, 1996.
(2) CONVERSION
On June 30, 1995, First Mutual Bank, S.B. (the "Bank") converted from a
state-chartered mutual savings bank to a state-chartered stock savings bank.
The Bank issued all of its common stock to the Company and at the same time the
Company issued 4,700,000 shares of common stock at $10.00 per share to the ESOP,
certain depositors of the Bank, and certain members of the general public, all
pursuant to a plan of conversion (the "Conversion").
The ESOP purchased 376,000 shares of common stock representing 8% of the total
issued shares at a price of $10.00 per share. The ESOP borrowed $3,760,000 from
the Company to purchase the stock using the stock as collateral for the loan.
The loan is to be repaid principally from the Bank's contributions to the ESOP
over a period of up to 10 years.
(3) EARNINGS PER SHARE OF COMMON STOCK
Primary and fully diluted earnings per share were computed by dividing net
income by 4,099,059, and 4,124,719 respectively, the weighted average number
of net shares of common stock outstanding during the three months ended
September 30, 1996. There were 407,600 outstanding stock options from July 25,
1996 to the end of the quarter at an exercise price of $11.75 per share.
PAGE 7
<PAGE>
(4) ACCOUNTING CHANGES
In May 1995, the FASB released SFAS No. 122, "Accounting for Mortgage
Servicing Rights". SFAS No. 122 requires mortgage banking enterprises to
recognize the rights to service mortgage loans for others as a separate asset
however those rights are acquired. The Statement applies to fiscal years
beginning after December 15, 1995, and is not expected to materially impact
the capital, financial position or net income of the Company or the Bank.
Effective January 1, 1996, the Company will adopt Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock Based
Compensation." This statement encourages companies to use a fair value method
to account for stock based compensation plans. If such a method is not used,
companies must disclose the pro forma effect on net income and earnings per
share had this method been adopted. Management does not believe that this
statement will have a material effect on the capital, financial condition or net
income of the Company or the Bank.
In June, 1996, the Financial Accounting Standards Board released Statement of
Financial Accounting Standard No. 125, "Accounting for Transfers and
Extinguishments of Liabilities." SFAS No. 125 provides accounting, and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities. SFAS No. 125 applies to transfers and extinguishments occurring
after December 31, 1996 and early or retroactive application is not permitted.
Management anticipates that the adoption of SFAS No. 125 will not have a
material impact on the capital, financial condition or net income of the Company
or the Bank.
(5) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
PAGE 8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
FINANCIAL CONDITION
Total assets increased $40.7 million, or 14.8%, to $316.4 million at September
30, 1996 from $275.7 million at December 31, 1995.
Loans receivable (excluding loans held for sale) increased $48.5 million, or
22.2%, to $266.7 million at September 30, 1996, from $218.2 million at December
31, 1995, reflecting the continuing deployment of capital raised in the
conversion and the increase in loan originations during 1996.
Deposits increased $11.6 million, or 6.0% from $192.5 million at December 31,
1995, to $204.1 million at September 30, 1996. This increase was primarily due
to offering new deposit products and more competitive rates in order to attract
additional depositors to fund increases in loans receivable.
Advances from the Federal Home Loan Bank increased by $40.5 million from $4.1
million at December 31, 1995, to $44.6 million at September 30, 1996. This
increase was primarily due to fund the increase in loans receivable.
Accrued expenses and other liabilities decreased $2.3 million from $6.2 million
at December 31, 1995, to $3.9 million at September 30, 1996. This decrease was
primarily due to the decrease in outstanding loan disbursement checks from the
earlier period.
Non-performing assets were $475,000 as of September 30, 1996, and $767,000 as of
December 31, 1995. The following table sets forth the amounts and categories of
non-performing assets.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
<S> <C> <C>
Non-Performing Loans:
One to four family $281 $705
Consumer 71 11
Commercial 23 -
---- ----
Total 375 716
Total Repossessed Assets 23 -
Total Real Estate Owned 77 51
---- ----
Total Non-performing assets $ 475 $767
------ ----
------ ----
Total Non-performing assets
to total assets .15% .28%
</TABLE>
PAGE 9
<PAGE>
During the three months ended September 30, 1996, 470,000 shares of common stock
or 10% of the shares issued at the time of conversion, were purchased by the
Company in open market transactions at an average price of $12.96 per share. In
the three months ended June 30, 1996, 235,000 shares of common stock or 5% of
the shares issued at the time of conversion, were purchased by the Company in
open market transactions at an average price of $12.71 per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, funds received from the
sale, amortization, and prepayment of loans, advances from the Federal Home Loan
Bank, and funds provided from operations. While scheduled loan repayments are a
relatively predictable source of funds, deposit flows and loan prepayments are
greatly influenced by general interest rates, economic conditions and
competition. The Company also borrows funds from the Federal Home Loan Bank
based on need, comparative costs, and availability at the time. Assets of the
Company qualifying for regulatory liquidity totaled $32.7 million at September
30, 1996.
As of September 30, 1996, the Company had total equity capital of $63.1
million and the Bank had total equity Capital of $50.3 million.
All the minimum levels of regulatory capital required by the Federal Reserve
Board for the Company and the Federal Deposit Insurance Corporation for the Bank
were met.
RESULTS OF OPERATIONS
GENERAL. The net loss for the three months ended September 30, 1996 was
$605,000 compared to net income of $779,000 for the same period in 1995. The
decrease was primarily due to an FDIC special assessment of $1,314,000,
resulting in an after-tax charge of approximately $805,000. Additionally, the
adoption of the Recognition and Retention Plan on July 25, 1996, resulted in
additional compensation and benefits expense of approximately $490,000 for the
quarter and an after-tax charge of approximately $300,000.
Net income for the nine months ended September 30, 1996, was $724,000 compared
to $1,787,000 for the same period in 1995. The decrease was primarily due to
the increase in non-interest expense of $3,156,000 to $7,334,000 in 1996 from
$4,178,000 for the same period in 1995. Of the $3,156,000 increase in
non-interest expense, $1,314,000 was attributable to the FDIC special
assessment. This increase was partially offset by the increase in net interest
income of $1,445,000 from the earlier period primarily due to the interest
income earned on the net proceeds from the stock conversion on June 30, 1995.
The Bank's deposit liabilities are insured by the SAIF fund of the FDIC. On
September 30, 1996, a special assessment of 65.7
PAGE 10
<PAGE>
basis points was applied against all SAIF-assessable deposits of financial
institutions as of March 31, 1995 in order to recapitalize the SAIF deposit
insurance fund. The Bank was
assessed $1,314,000, resulting in an after-tax charge of approximately $805,000.
As a result, SAIF insured financial institutions, including First Mutual Bank,
the Company's bank subsidiary, will see a benefit in reduction of deposit
insurance premiums beginning January 1, 1997. The Bank's annual premium is
expected to be reduced approximately 16.6 basis points from the current 23 basis
points to 6.4 basis points.
INTEREST INCOME. Interest income for the three and nine months ended September
30, 1996, increased $722,000 or 15.0%, and $2,401,000, or 17.9%, respectively,
from the earlier periods. The increases were primarily due to the increase in
average earning assets of $41.0 million, or 15.9%, for the three months and
$41.3 million, or 17.0%, for the nine months ended September 30, 1996, as
compared to the same periods in 1995, reflecting primarily the investment of
proceeds from the initial stock offering and the increase in loan originations
during 1996. For the three months ended September 30, 1996, this was partially
offset by the decrease in the average yield on earning assets from 7.47% in the
earlier period to 7.41% in the current period. For the nine month period ended
September 30, 1996, the average yield on earning assets increased to 7.41% from
7.35% in the earlier period and contributed to the increase in interest income.
INTEREST EXPENSE. Interest expense increased $603,000 or 25.6%, for the three
months ended September 30, 1996, and $956,000, or 13.5%, for the nine months
ended September 30, 1996, as compared to the same periods in 1995, primarily due
to the increase in average interest paying liabilities, which increased $48.1
million, or 24.9%, for the three month period and 21.1 million, or 10.5% for the
nine month period.
NET INTEREST INCOME. Net interest income increased $119,000, or 4.8%, for the
three months ended September 30, 1996, and $1,445,000, or 22.8%, for the nine
months ended September 30, 1996, as compared to the same periods in 1995. The
increase for the three month period was primarily due to the increase in average
earning assets of $41.0 million as a result of the increase of loan originations
from the earlier period. The increase for the nine month period was primarily
due to the $41.3 million increase in average earning assets reflecting primarily
the investment of proceeds from the initial stock offering and the increase in
loan originations from the earlier period. The interest rate spread was 2.49%
and 2.57%, respectively, for the three and nine months ended September 30, 1996,
which was lower than the 2.58% and 2.64% interest rate spread for the three and
nine months ended September 30, 1995.
PAGE 11
<PAGE>
PROVISIONS FOR LOAN LOSSES. The Bank maintains an allowance for loan losses
based upon management's periodic evaluation of known and inherent risks in the
loan portfolio including commercial real estate and commercial business loans,
the Bank's past loss experience, adverse situations that may affect borrowers'
ability to repay loans, estimated value of underlying loan collateral, current
and to a lesser extent, expected future economic conditions. During the three
and nine months ended September 30, 1996, $25,000 and $75,000 provision for
loan losses, respectively, were recorded primarily as a result of the overall
increase in the loan portfolio, as well as changes in the loan portfolio mix,
especially the increase in commercial and consumer loans. Bank management did
not make any provision to the allowance for loan losses for the same periods in
1995. This lack of provision was indicative of management's assessment of the
adequacy of the allowance, given the trends in historical loss experience of
the portfolio and the then current economic conditions. The Bank's ratio of
allowance for loan losses to non-performing loans was 332.27% at September 30,
1996, compared to 163.69% at December 31, 1995.
NON-INTEREST INCOME. Non-interest income, consisting primarily of service
charges and fees on loans and deposit accounts, net gain on sale of mortgage
loans, investment sales commissions, and loan servicing fees increased $33,000,
or 14.8%, for the three months ended September 30, 1996, as compared to the same
period in 1995. This was primarily due to a $16,000 increase in deposit service
income, $10,000 increase in the net gain on sale of mortgage loans, and $8,000
increase in investment sales commissions. Non-interest income increased
$172,000, or 27.8%, for the nine months ended September 30, 1996, as compared to
the earlier period. This was primarily due to a $95,000 increase in net gain on
sale of mortgage loans, $43,000 increase in deposit service fee income, and
$35,000 increase in investment sales commissions. A large part of the increase
in the net gain on sale of mortgage loans was due to the implementation of FASB
122, which provides for the capitalization of originated mortgage servicing
rights. Approximately $13,000 of originated mortgage servicing rights was
capitalized during the three months ended September 30, 1996 and approximately
$87,000 was capitalized during the nine months ended September 30, 1996.
NON-INTEREST EXPENSE. Non interest expense, consisting primarily of employee
compensation and benefits, premises and equipment expenses, federal deposit
insurance premiums, data processing, advertising and promotion, and other
miscellaneous items increased $2,382,000, or 164.0% for the three months ended
September 30, 1996, as compared to the same period in 1995, primarily due to the
FDIC Special Assessment of $1,314,000, and to a lesser extent to the increase in
compensation and benefits of $710,000, or 88.3%, from the earlier period.
$490,000 of the increase in compensation and benefits was due to the adoption of
PAGE 12
<PAGE>
the 1996 Recognition and Retention Plan. Non interest expense increased
$3,156,000, or 75.5%, for the nine months ended September 30, 1996, as compared
to the earlier period, primarily due to the FDIC Special Assessment of
$1,314,000, and to a lesser extend to the increase in compensation and benefits
of $1,099,000, or 48.5%, from the earlier period. $490,000 of the
increase in compensation and benefits was due to the adoption of the 1996
Recognition and Retention Plan.
INCOME TAX EXPENSES. Income tax expenses decreased $871,000, for the three
months ended September 30, 1996, and $551,000 for the nine months ended
September 30, 1996, as compared to the same periods in 1995 as a result of the
decreased earnings before taxes.
SUBSEQUENT EVENTS. Paul K. Reynolds, President and Chief Executive Officer of
First Mutual Bank, S.B., today announced that the Bank has entered into a letter
of intent with First of America Bank -- Illinois, N.A. ("FOA") to acquire FOA's
branch offices in Lincoln, Taylorville and Pontiac, Illinois.
The combined branches have approximately $160 million in total deposits. In
addition to assuming the deposits attributable to the branches, First Mutual
Bank has agreed to acquire certain assets associated with the branches,
including the consumer and commercial loans. First Mutual Bank intends to
continue to operate from FOA's current locations in Lincoln, Taylorville and
Pontiac. The branch acquisitions are subject to the negotiation of a definitive
agreement between First Mutual Bank and FOA, and approval by the Federal Deposit
Insurance Corporation and the Illinois Commissioner of Banks and Real Estate.
PAGE 13
<PAGE>
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<S> <C>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company
or any of its subsidiaries is a party other than ordinary routine
litigation incidental to their respective businesses.
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders was held at the Company's main
office, 135 East Main Street, Decatur, Illinois, on July 25, 1996.
Robert D. Nichols and Roy M. Ousley were elected directors for terms
of three years.
The Company's 1996 Stock Option Plan authorized the grant of stock
option and limited rights to purchase 470,000 shares, or 10% of the
shares of common stock issued to stockholders in the initial offering.
The options are to be granted to Paul K. Reynolds, the Company's
President, executive officers as a group, outside directors, and
employees as a group. By a vote of 2,715,642 For; 636,744 Against;
and 40,493 Abstain, the 1996 Stock Option Plan was ratified and
approved by the stockholders.
The Company's 1996 Recognition and Retention Plan authorized the award
of 188,000 shares of the Company's stock to Paul K. Reynolds, the
Company's President, executive officers as a group, non employee
directors, and employees as a group as a method of providing certain
key employees and non employee directors of the Company with a
proprietary interest in the Company in a manner designed to encourage
such persons to remain with the Bank and the Company. By a vote of
2,595,901 For; 816,396 Against; and 40,115 Abstain, the 1996
Recognition and Retention Plan was ratified and approved by the
stockholders.
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
NONE
</TABLE>
Page 14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 MUTUAL BANCORP, INC.
(Registrant)
Date: 11/13/96 By: /s/ Paul K. Reynolds
-----------------------------
President and Chief Executive
Officer
Date: 11/13/96 By: /s/ G. Lynn Brinkman
------------------------------
Vice President,
Secretary, Treasurer and
Chief Financial Officer
Page 15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUN-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,762
<INT-BEARING-DEPOSITS> 7,323
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,956
<INVESTMENTS-CARRYING> 21,021
<INVESTMENTS-MARKET> 21,032
<LOANS> 267,475
<ALLOWANCE> 1,246
<TOTAL-ASSETS> 316,381
<DEPOSITS> 204,082
<SHORT-TERM> 25,100
<LIABILITIES-OTHER> 4,633
<LONG-TERM> 19,500
0
0
<COMMON> 470
<OTHER-SE> 62,596
<TOTAL-LIABILITIES-AND-EQUITY> 316,381
<INTEREST-LOAN> 4,970
<INTEREST-INVEST> 411
<INTEREST-OTHER> 162
<INTEREST-TOTAL> 5,543
<INTEREST-DEPOSIT> 2,489
<INTEREST-EXPENSE> 2,961
<INTEREST-INCOME-NET> 2,582
<LOAN-LOSSES> 25
<SECURITIES-GAINS> (4)
<EXPENSE-OTHER> 3,834
<INCOME-PRETAX> (1,021)
<INCOME-PRE-EXTRAORDINARY> (605)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (605)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
<YIELD-ACTUAL> 3.45
<LOANS-NON> 42
<LOANS-PAST> 333
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,255
<CHARGE-OFFS> 43
<RECOVERIES> 9
<ALLOWANCE-CLOSE> 1,246
<ALLOWANCE-DOMESTIC> 1,246
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
