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 June 30, 1997
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 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 3,506,670 shares of the Registrant's common
stock outstanding as of June 30, 1997. Included were 300,800
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 June 30, 1997, and
December 31, 1996 2
Consolidated Statements of Income for
the Three and Six Months Ended
June 30, 1997 and 1996 3
Consolidated Statements of Changes in
Stockholders' Equity for the Six Months
Ended June 30, 1997 4
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1997
and 1996 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 15
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE>
FIRST MUTUAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
JUNE 30, 1997 DECEMBER 31, 1996
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,010 $ 4,350
Interest-bearing deposits with financial institutions 25,611 6,730
Securities held-to-maturity
(Estimated fair value: June 30, 1997 $39,322) 39,283 --
(Estimated fair value: December 31, 1996 $19,063) 19,007
Securities available for sale 14,029 4,000
Loans held for sale 1,562 1,103
Loans receivable, net 304,338 282,066
Federal Home Loan Bank stock 2,349 3,200
Accrued interest receivable 2,590 1,969
Foreclosed real estate, net of allowance for losses 143 77
Premises and equipment 6,666 4,119
Cash surrender value of life insurance 3,230 3,215
Goodwill and core deposit intangibles 13,003 --
Other assets 1,881 1,940
---------- ----------
TOTAL ASSETS $ 417,695 $ 331,776
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 329,551 $ 202,923
Advances from borrowers for taxes and insurance 1,404 1,420
Advances from Federal Home Loan Bank 21,500 62,800
Securities sold under Agreements to Repurchase 8,000 --
Accrued expenses and other liabilities 3,599 2,416
---------- ----------
TOTAL LIABILITIES 364,054 269,559
STOCKHOLDERS' EQUITY:
Common stock, $101 par value,
8,000,000 shares authorized;
issued 4,700,000 shares 470 470
Additional paid in capital 45,219 45,104
Unearned ESOP shares (3,008) (3,196)
Unearned stock awards (1,226) (1,504)
Retained earnings, substantially restricted 29,565 29,578
Treasury Stock at cost - 611,400 shares (Dec. 31, 1996) -- (8,231)
- 1,193,330 shares (June 30, 1997) (17,382) --
Unrealized gain (loss) on securities available for sale,
net of tax 3 (4)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 53,641 62,217
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 417,695 $ 331,776
---------- ----------
---------- ----------
Number of Shares Outstanding, Net of Unearned
ESOP Shares 3,205,870 3,769,000
Book Value Per Share $ 16.73 $ 16.51
</TABLE>
<PAGE>
FIRST MUTUAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30 JUNE 30
----------------------- ---------------------
1997 1996 1997 1996
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable
First mortgage loans $ 9,473 $ 8,198 $ 4,784 $ 4,145
Consumer and other loans 1,946 606 1,018 394
Commercial loans 422 220 224 115
Investment securities 1,582 878 767 428
Other interest-earning assets 1,050 391 445 195
---------- ---------- ---------- ----------
Total interest income 14,473 10,293 7,238 5,277
Interest expense
Deposits 8,000 4,685 4,001 2,348
Federal Home Loan Bank advances
and other interest charges 751 398 358 279
---------- ---------- ---------- ----------
Total interest expense 8,751 5,083 4,359 2,627
---------- ---------- ---------- ----------
Net interest income 5,722 5,210 2,879 2,650
Provision for loan losses 253 50 93 25
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 5,469 5,160 2,786 2,625
Noninterest income
Gain (loss) on sales of loans 84 116 47 47
Deposit service fee income 340 166 185 87
Loan servicing fees 59 61 30 31
Investment sales commissions 92 63 54 36
Other 191 128 97 64
---------- ---------- ---------- ----------
Total noninterest income 766 534 413 265
Noninterest expense
Compensation and benefits 2,823 1,853 1,310 965
Occupancy and equipment 656 378 324 203
FDIC deposit insurance premium 66 225 33 113
Advertising and promotion 268 219 131 143
Data processing 418 198 201 110
Printing, postage, stationery, and supplies 236 131 110 73
Net expense on foreclosed real estate operations 3 5 1 2
Net loss on sale of real estate owned including
provisions for losses 16 -- 4 --
Amortization of Goodwill & Core Deposit Intangibles 360 -- 118 --
Other 707 491 325 280
---------- ---------- ---------- ----------
Total noninterest expense 5,553 3,500 2,557 1,889
---------- ---------- ---------- ----------
Income before income taxes 682 2,194 642 1,001
Income taxes 165 865 206 430
---------- ---------- ---------- ----------
Net income $ 517 $ 1,329 $ 436 $ 571
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Average Number of Shares Outstanding
Net of Unearned ESOP Shares 3,400,198 4,315,530 3,336,677 4,287,949
Earnings per Common Share-fully diluted $0.15 $0.31 $0.13 $0.14
</TABLE>
<PAGE>
<TABLE>
FIRST MUTUAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Unrealized
Retained Gain (Loss) on
Additional Unearned Unearned Earnings - Securities
Common Paid In ESOP Stock Substantially Treasury Available
Stock Capital Shares Awards Restricted Stock For Sale Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ -- $ -- $ -- $ -- $27,811 $ -- $ -- $ 27,811
Issuance of Common Stock 470 44,930 (3,760) -- -- -- -- 41,640
ESOP shares earned -- 50 188 -- -- -- -- 238
Cash Dividends ($.07 per share) -- -- -- -- (605) -- -- (605)
Reclassification of securities
from held-to-maturity to
available-for-sale, net of tax -- -- -- -- -- -- 43 43
Change in unrealized gain on
securities available-for-sale,
net of tax -- -- -- -- -- -- 3 3
Net Income -- -- -- $ 2,398 -- -- $2,398
---- ------- ------- ------- ------- -------- --- -------
Balance at December 31, 1995 470 44,980 (3,572) -- 29,604 -- 46 71,528
---- ------- ------- ------- ------- -------- --- -------
Net Income -- -- -- -- 1,171 -- -- 1,171
Purchase of Treasury Shares -- -- -- -- -- (10,330) -- (10,330)
Unearned Stock Awards -- -- -- (2,099) -- 2,099 -- --
ESOP Shares earned -- 116 376 -- -- -- -- 492
Stock Awards Earned -- -- -- 595 -- -- -- 595
Tax benefit of stock awards -- 8 -- -- -- -- -- 8
Change in unrealized appreciation
(depreciation) on securities
available-for-sale, net of tax -- -- -- -- -- -- (50) (50)
Cash dividends ($.30 per share) -- -- -- -- (1,197) -- (1,197)
---- ------- ------- ------- ------- -------- --- -------
Balance at December 31, 1996 470 45,104 (3,196) (1,504) 29,578 (8,231) (4) 62,217
---- ------- ------- ------- ------- -------- --- -------
Net Income (1/1/97 - 6/30/97) -- -- -- -- 517 -- -- 517
Purchase of Treasury Shares -- -- -- -- -- (9,151) -- (9,151)
ESOP Shares Earned (1/1/97 -
6/30/97) -- 97 188 -- -- -- -- 285
Stock Awards Earned (1/1/97 -
6/30/97) -- -- -- 278 -- -- -- 278
Tax Benefit of Stock Awards -- 18 -- -- -- -- -- 18
Change in unrealized appreciation
(depreciation) on securities available
for sale, net of tax -- -- -- -- -- -- 7 7
Cash dividends ($.08 per share) -- -- -- -- (530) -- -- (530)
---- ------- ------- ------- ------- -------- --- -------
Balance at June 30, 1997 $470 $45,219 ($3,008) ($1,226) $29,565 ($17,382) ($3) $53,641
---- ------- ------- ------- ------- -------- --- -------
---- ------- ------- ------- ------- -------- --- -------
</TABLE>
</PAGE>
<TABLE>
FIRST MUTUAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(unaudited)
Six Months Ended
June 30, 1997 June 30, 1996
<S> <C> <C>
Cash flows from operating activities
Net income 517 1,329
Adjustments to reconcile net income to
net cash from operating activities
Depreciation and amortization 311 165
Amortization of premiums and
discounts on mortgaged-backed
and investment securities, net 105 53
Amortization of Goodwill and Core
Deposit Intangibles 360 --
ESOP Compensation 285 240
Stock Awards Expense 278 --
Origination of loans held for sale (6,217) (7,927)
Proceeds from sale of loans 5,842 8,380
Change in net deferred loan
origination costs 23 (84)
Change in deferred income taxes 31 14
Provision for loan losses 253 50
Provision for losses on foreclosed real estate 2 --
Net Loss on sale of Available-for-sale Securities 8 --
Net (gain) loss on sales of loans (84) (116)
Net (gain) loss on sale of foreclosed
real estate 13 --
Change in
Accrued interest receivable (621) (229)
Cash surrender value of
life insurance (72) (69)
Other assets 23 (893)
Accrued expenses and other
liabilities 1,243 (4,200)
------- ------
Net cash provided by operating activities 2,300 (3,287)
------- ------
Cash flows from investing activities
Net (increase) decrease in loans receivable (12,767) (19,445)
Proceeds from maturity of investment
securities - Held to Maturity 5,000 12,465
Proceeds from maturity and sale of Investments-
Available for Sale 14,006 4,003
Proceed from redemption of Federal Home Loan Bank stock 851 --
Purchase of investment securities - Held to Maturity (25,366) (13,561)
Purchase of investment securities - Available for Sale (24,047) (3,022)
Investments in
Loans purchased (9,929) (8,051)
Federal Home Loan Bank stock -- (113)
Premises and equipment (2,830) (503)
Foreclosed real estate (19) (5)
Goodwill and core deposit intangibles (13,335) --
</TABLE>
<PAGE>
<TABLE>
Six Months Ended
June 30, 1997 June 30, 1996
<S> <C> <C>
Cash flows from investing activities (Continued)
Net (increase) decrease in interest-bearing
deposits with financial institutions (18,880) 2,278
Proceeds from sales of foreclosed
real estate 87 --
------- ------
Net cash provided by (used in)
investing activities (87,229) (25,954)
------- ------
Cash flows from financing activities
Net increase (decrease) in deposits 126,628 8,867
Net change in advances from
Federal Home Loan Bank (41,300) 23,200
Proceeds from securities sold under
agreements to repurchase 8,000 --
Net increase (decrease) in advances from
borrowers for taxes and insurance (16) (57)
Purchase of Treasury Stock (9,151) (2,988)
Dividends paid (572) (305)
------- ------
Net cash provided by (used in)
financing activities 83,589 28,717
Net increase (decrease) in cash and
cash equivalents (1,340) (524)
Cash and cash equivalents at beginning of period 4,350 3,005
------- ------
Cash and cash equivalents at end of period 3,010 2,481
------- ------
------- ------
Supplemental disclosures of cash flow
information
Cash paid for
Interest 7,706 5,077
Income taxes (refunds) (149) 974
Transfers from loans to real estate
acquired through foreclosure 148 49
</TABLE>
<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 June 30, 1997 are not
necessarily indicative of the results expected for the year
ending December 31, 1997.
(2) Conversion
On June 30, 1995, First Mutual Bank, S.B. (the "Bank") converted
from a state chartered mutual savings bank to a state charted
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 3,250,722, and 3,336,677 respectively, the
weighted average number of net shares of common stock outstanding
during the three months ended June 30, 1997. There were 407,600
outstanding stock options during the entire quarter at an
exercise price of $11.75 per share.
<PAGE>
(4) Accounting Changes
On March 3, 1997, the Financial Accounting Standards Board (FASB)
issued Statement 128, Earnings Per Share, which is effective for
financial statements beginning with year end 1997. Statement 128
simplifies the calculation of earnings per share (EPS) by
replacing primary EPS with basic EPS. It also requires dual
presentation of basic EPS and diluted EPS for entities with
complex capital structures. Basic EPS includes no dilution and
is computed by dividing income available to common shareholders
by the weighted-average common shares outstanding for the period.
Diluted EPS reflects the potential dilution of securities that
could share in earnings, such as stock options, warrants or other
common stock equivalents. The Company expects Statement 128 to
have little impact on its earnings per share calculations in
future years, other than changing terminology from primary EPS to
basic EPS. All prior period EPS data will be restated to conform
with the new presentation.
In June, 1996, the Financial Accounting Standard's Board released
SFAS 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 requires a
consistent application of a financial-components approach that
focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred,
and derecognizes liabilities when extinguished. SFAS No. 125
also supersedes SFAS No. 122 and requires that servicing assets
and liabilities be subsequently measured by amortization in
proportion to and over the period of estimated net servicing
income or loss and requires assessment for asset impairment or
increases obligation based on their fair values. SFAS No. 125
applies to transfers and extinguishments occurring after December
31, 1996 and early or retroactive application is not permitted.
The adoption of SFAS No. 125 did not have a material impact on
the financial position or results of operations of 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>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition
Total assets increased $85.9 million, or 25.9%, to $417.7 million
at June 30, 1997, from $331.8 million at December 31, 1996,
primarily as a result of acquiring three branch offices in
Pontiac, Lincoln, and Taylorville, Illinois (the "Branch
Acquisitions") from First of America Bank-Illinois, N.A. on
January 3, 1997.
The following summarizes the assets purchased and liabilities
assumed as a result of the Branch Acquisitions.
<TABLE>
Assets purchased: (In Thousands)
<S> <C>
Cash due from bank $ 121,222
Loans Receivable 9,901
Less: Allowance for loan losses (68) 9,833
-----------
Premises & Equipment 2,706
Goodwill and Core Deposit Intangibles 13,318
Other assets 83
-----------
Total Assets purchased $ 147,162
-----------
-----------
Liabilities assumed
Deposits $ 145,520
Other liabilities 1,642
-----------
Total Liabilities assumed $ 147,162
-----------
-----------
</TABLE>
Loans receivable (excluding loans held for sale) increased $22.2
million, or 7.9%, to $304.3 million at June 30, 1997, from $282.1
million at December 31, 1996, as a result of the Branch
Acquisitions in addition to the excess of loan originations
versus repayments during the six-month period. A total of $9.9
million of loans receivable was acquired as a result of the
Branch Acquisitions.
Interest-bearing deposits with financial institutions and
securities held-to-maturity and available for sale increased
$49.2 million, or 165.7%, to $78.9 million from $29.7 million at
December 31, 1996. The increase was primarily due to the
investment of the proceeds received as a result of the Branch
Acquisitions.
Premises and equipment increased $2.6 million, or 63.4%, to $6.7
million at June 30, 1997 from $4.1 million at December 31, 1996,
<PAGE>
primarily as a result of the Branch Acquisitions, which resulted
in an additional $2.7 million in premises and equipment
associated with the three branch offices.
Goodwill and Core Deposit Intangibles increased to $13.0 million
from $0 as a result of the Branch Acquisitions.
Deposits increased $126.7 million, or 62.4%, to $329.6 million at
June 30, 1997, from $202.9 million at December 31, 1996,
primarily as a result of the Branch Acquisitions.
Advances from the Federal Home Loan Bank decreased $41.3 million,
or 65.8%, to $21.5 million at June 30, 1997, from $62.8 million
at December 31, 1996, primarily as a result of the use of
proceeds from the Branch Acquisitions to repay outstanding
advances.
Securities sold under Agreements to Repurchase increased $8.0
million to $8.0 million at June 30, 1997, from 0 at December 31,
1996 as a result of a Repurchase Agreement with a local county
collector.
Non-performing assets were $779,000 as of June 30, 1997, compared
to $577,000 as of December 31, 1996. The following table sets
forth the amounts and categories of non-performing assets.
<TABLE>
June 30, 1997 December 31, 1996
(Dollars in Thousands)
<S> <C> <C>
Non-Performing Loans:
One to four family $ 447 $ 298
Consumer 168 128
Commercial -- 74
------ ------
Total 615 500
Total Repossessed
Assets 21 --
Total Real Estate
Owned 143 77
------ ------
Total Non-performing
Assets $779 $577
------ ------
Total Non-performing assets
to total assets .19% .17%
</TABLE>
During the three months ended June 30, 1997, 235,000 shares of
common stock or 5% of the 4,700,000 shares issued at the time of
conversion, were purchased by the Company in open market
transactions at an average price of $15.93 per share.
<PAGE>
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 totalled $73.3 million at June 30, 1997
compared to $37.5 million at December 31, 1996.
As of June 30, 1997, the Company had total equity capital of
$53.6 million and the Bank had total equity capital of $50.0
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. Net income for the three months ended June 30, 1997,
was $436,000 compared to $571,000 for the same period in 1996.
The decrease was primarily due to an increase in non-interest
expense of $668,000, or 35.4%, related primarily to increased
compensation and benefits, occupancy and equipment, data
processing, amortization of goodwill and core deposit
intangibles, and other non-interest expenses. The additional
expenses were primarily due to the costs of adding new products
and services, the Branch Acquisitions, and the addition of two
supermarket branch facilities in the Decatur area. The increase
in non-interest expense was partially offset by an increase in
net interest income of $229,000, or 8.6%, and an increase in non-
interest income of $148,000, or 55.8%.
Net income for the six months ended June 30, 1997, was $517,000
compared to $1,329,000 for the same period in 1996. The decrease
was primarily due to the increase in non-interest expense of $2.1
million to $5.6 million in 1997 from $3.5 million for the same
period in 1996. The increase in non-interest expense was related
primarily to increased compensation and benefits, occupancy and
equipment, data processing, amortization of goodwill and core
deposit intangibles, and other non-interest expenses. These
additional expenses were primarily due to the costs of adding new
products and services, the Branch Acquisitions, and the addition
of two supermarket branch facilities in the Decatur area. The
increase in non-interest expense was partially offset by an
increase in net interest income of $512,000, or 9.8%, and an
increase in non-interest income of $232,000, or 43.4%.
Interest Income. Interest income for the three months ended June
30, 1997 increased $1.9 million, or 35.8%, from the three months
<PAGE>
ended June 30, 1996. The increase was primarily due to the
increase in average earning assets of $101.4 million, or 35.7%,
to $385.3 million from $283.9 million in the earlier period,
reflecting primarily the investment of proceeds from the Branch
Acquisitions. The average yield also increased to 7.51% from
7.43% in the earlier period.
Interest income for the six months ended June 30, 1997 increased
$4.2 million, or 40.8%, from the six months ended June 30, 1996.
The increase was primarily due to the increase in average earning
assets of $113.8 million, or 40.9%, to $391.7 million from $277.9
million in the earlier period, reflecting primarily the
investment of proceeds from the Branch Acquisitions. This was
partially offset by the decrease in average yield to 7.39% from
7.41% in the earlier period.
Interest Expense. Interest expense increased $1.8 million, or
69.2%, to $4.4 million for the three months ended June 30, 1997,
as compared to $2.7 million for the three months ended June 30,
1996, primarily due to the increase in average paying
liabilities, which increased $138.5 million, or 63.0%, to $358.4
million from $219.9 million in the earlier period. The increase
in the average paying liabilities was primarily due to the Branch
Acquisitions. The cost of the average paying liabilities also
increased to 4.87% form 4.78% in the earlier period.
Interest expense increased $3.7 million, or 72.5%, to $8.8
million for the six months ended June 30, 1997, from $5.1 million
in the earlier six-month period, primarily due to the increase in
average paying liabilities, which increased $149.7 million, or
70.5%, to $362.0 million from $212.3 million in the earlier
period, primarily as a result of the Branch Acquisitions. The
cost of the average paying liabilities also increased to 4.84%
from 4.79% in the earlier period.
Net Interest Income. Net interest income increased $229,000, or
8.6%, during the current three-month period versus the earlier
three-month period. The increase was primarily due to the
increase in average earning assets of $101.4 million, which was
partially offset by the $138.5 million increase in average paying
liabilities during the current period versus the earlier period.
The net interest rate spread was 2.64% for the current three-
month period as compared to 2.65% for the earlier period.
Net interest income increased $.5 million, or 9.6%, for the
current six-month period versus the earlier six-month period.
The increase was primarily due to the increase in average earning
assets of $113.8 million, which was partially offset by the
$149.7 million increase in interest paying liabilities during the
current period versus the earlier period. The net interest rate
spread was 2.55% for the current six-month period as compared to
2.62% for the earlier six-month period.
<PAGE>
Provision 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 months ended June 30, 1997, a
$93,000 provision for loan losses was recorded primarily as a
result of the overall increase in the loan portfolio, changes in
the loan portfolio mix, especially the increase in commercial and
consumer loans, and to the net charge-offs incurred during the
period. Bank management made a $25,000 provision to the
allowance for loan losses for the same period in 1996. The
Bank's ratio of allowance for loan losses to non-performing loans
was 231.1% at June 30, 1997, compared to 248.8% at December 31,
1996.
During the six months ended June 30, 1997, a $253,000 provision
for loan losses was recorded as a result of the overall increase
in the loan portfolio, changes in the loan portfolio mix,
especially the increases in commercial and consumer loans, and to
the net charge-offs incurred during the period. Bank management
made a $50,000 provision to the allowance for loan losses for the
same period in 1996.
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 $148,000, or 55.8%, for the three-
month period ended June 30, 1997, as compared to the earlier
three-month period and $232,000, or 43.4% for the six-month
period ended June 30, 1997 as compared to the earlier six-month
period. The increases were primarily due to the increase in
deposit service fee income of $98,000 for the three-month period
and $174,000 for the six-month period.
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, amortization of goodwill and core
deposit intangibles, and other miscellaneous items increased $.7
million or 36.8%, for the three-month period ended June 30, 1997,
as compared to the earlier three-month period in 1996, and $2.1
million, or 60.0%, as compared to the earlier six-month period in
1996. The additional expenses were primarily due to the costs of
adding new products and services, the Branch Acquisitions, and
the addition of two supermarket branch facilities in the Decatur
area. Compensation and benefits increased $345,000, or 35.8%,
for the three-month period and $.9 million, or 47.4% for the six-
month period, primarily due to the increase in the number of
full-time equivalent employees to 173 at June 30, 1997, as
<PAGE>
compared to 123 at June 30, 1996. The amortization of goodwill
and core deposit intangibles resulting from the Branch
Acquisitions, was $118,000 for the current three-month period and
$360,000 for the current six-month period as compared to $0 in
the earlier periods. Occupancy and equipment expenses increased
$121,000 for the three-month period and $278,000 for the six-
month period, primarily due to the Branch Acquisitions and the
addition of two supermarket branch facilities. Data Processing
costs increased $91,000 during the three-month period and
$220,000 during the six-month period as compared to the earlier
periods primarily due to the Branch Acquisitions and adding new
products and services.
Income Tax Expenses. Income tax expenses decreased $224,000 for
the three months ended June 30, 1997 and $700,000 for the six
months ended June 30, 1997, as compared to the same periods in
1996. The decreases were a result of decreased earnings before
taxes and the increased taxes during the three-month period in
1996 due to an audit by the Illinois Department of Revenue for
years prior to 1995.
<PAGE>
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
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
NONE
<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: August 13, 1997 By: /s/ Paul K. Reynolds
-----------------------------------
Paul K. Reynolds, President
and Chief Executive Officer
Date: August 13, 1997 By: /s/ G. Lynn Brinkman
-----------------------------------
G. Lynn Brinkman, Vice President
Secretary, Treasurer and
Chief Financial Officer
<PAGE>
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