UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
Commission File Number: 33-90342
CENTRAL ILLINOIS FINANCIAL CO., INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 37-1338484
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
100 WEST UNIVERSITY, CHAMPAIGN, ILLINOIS 61820
(Address of principal executive offices) (Zip Code)
(217) 351-6500
(Registrant's telephone number, including area code)
Indicate by "X" whether the registrant (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 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 the registrant's common stock,
as of November 1, 1996:
Central Illinois Financial Co., Inc. Common Stock 4,930,204
Page 1
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of
Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
Page 2
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CENTRAL ILLINOIS FINANCIAL CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1996 and December 31, 1995
(Unaudited, dollars in thousands)
<TABLE>
<S> <C> <C>
Sep. 30, Dec. 31,
ASSETS 1996 1995
Cash and due from banks $23,500 $26,900
Federal funds sold 17,000 53,800
Securities available-for-sale 112,901 73,457
Securities held-to-maturity (approximate market value
of $17,595 at September 30, 1996 and
$21,528 at December 31, 1995) 17,556 21,430
Other equity securities 1,731 2,417
Mortgage loans held-for-sale 1,107 9,421
Loans, net of allowance for loan losses of $5,588 and 284,948 311,519
$5,882 at September 30, 1996 and
December 31, 1995, respectively
Premises and equipment 10,777 10,992
Accrued interest receivable 4,399 4,443
Other assets 5,768 6,207
Total assets 479,687 520,586
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand - noninterest bearing 53,915 66,693
Demand - interest bearing 118,626 107,363
Savings 18,577 23,997
Time deposits $100 and over 24,449 42,839
Other time 155,631 178,265
Total deposits 371,198 419,157
Federal funds purchased and securities sold under
repurchase agreements 42,422 36,273
Federal Home Loan Bank advances 9,000 9,000
Accrued interest payable 1,404 1,964
Other liabilities 4,961 5,784
Total liabilities 428,985 472,178
Stockholders' equity:
Common stock, $0.01 par value; 6,500,000 shares authorized:
4,958,891 shares issued 50 50
Paid in capital 19,066 19,066
Retained earnings 32,490 29,180
Less: Treasury Stock, at cost, 28,487 shares in 1996 (378) 0
Unrealized holding loss on debt and equity
securities available-for-sale (526) 112
Total stockholders' equity 50,702 48,408
Total liabilities and stockholders' equity $479,687 $520,586
See accompanying notes to Condensed Consolidated Financial Statements.
</TABLE>
Page 3
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
CENTRAL ILLINOIS FINANCIAL CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Nine Months Ended September 30, 1996 and 1995
(Unaudited, dollars in thousands, except per share data)
<TABLE>
<S> <C> <C>
Interest income: 1996 1995
Loans, including fees
Taxable $19,729 $22,322
Exempt from federal income tax 18 19
Securities available-for-sale 4,234 2,498
Securities held-to-maturity
Taxable 374 1,196
Exempt from federal income tax 288 376
Other Equity Securities 98 115
Federal funds sold 1,549 414
Total interest income 26,290 26,940
Interest expense:
Deposits 11,345 11,144
Federal funds purchased and securities sold under
repurchase agreements 1,503 1,354
Federal Home Loan Bank advances 448 447
Total interest expense 13,296 12,945
Net interest income 12,994 13,995
Provision for loan losses 375 150
Net interest income after provision for loan
losses 12,619 13,845
Other income:
Trust fees 1,479 1,116
Service charges on deposit accounts 537 506
Gains on sale of debt securities 0 3
Gain (Loss) on sales of mortgage loans held-for-sale, net 197 (51)
Other 1,148 1,161
Total other income 3,361 2,735
Other expenses:
Salaries and employee benefits 5,943 6,885
Net occupancy 1,123 1,041
Equipment 737 884
Data processing 541 368
Federal deposit insurance premiums 2 416
Other 2,719 3,842
Total other expenses 11,065 13,436
Income from continuing operations before
income tax expense 4,915 3,144
Income tax expense 1,605 1,326
Income from continuing operations 3,310 1,818
Income from discontinued operations (net of tax effect
of $293 in 1995) 0 570
Net income $3,310 $2,388
Per share data:
Income from continuing operations $0.66 $0.37
Income from discontinued operations 0.00 0.11
Net income $0.66 $0.48
Weighted average shares outstanding 5,019,842 4,993,717
See accompanying notes to Condensed Consolidated Financial Statements.
</TABLE>
Page 4
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
CENTRAL ILLINOIS FINANCIAL CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended September 30, 1996 and 1995
(Unaudited, dollars in thousands, except per share data)
<TABLE>
<S> <C> <C>
Interest income: 1996 1995
Loans, including fees
Taxable $6,426 $7,696
Exempt from federal income tax 6 7
Securities available-for-sale 1,661 793
Securities held-to-maturity
Taxable 143 315
Exempt from federal income tax 95 129
Other Equity Securities 31 37
Federal funds sold 243 179
Total interest income 8,605 9,156
Interest expense:
Deposits 3,660 4,003
Federal funds purchased and securities sold under
repurchase agreements 490 471
Federal Home Loan Bank advances 150 151
Total interest expense 4,300 4,625
Net interest income 4,305 4,531
Provision for loan losses 75 75
Net interest income after provision for loan
losses 4,230 4,456
Other income:
Trust fees 382 349
Service charges on deposit accounts 167 167
Gains on sale of debt securities 0 1
Gains (losses) on sales of mortgage loans held-for-sale,
net 182 (62)
Other 394 349
Total other income 1,125 804
Other expenses:
Salaries and employee benefits 1,963 2,615
Net occupancy 385 397
Equipment 249 288
Data processing 180 140
Federal deposit insurance premiums 1 (23)
Other 772 1,112
Total other expenses 3,550 4,529
Income from continuing operations before income
tax expense 1,805 731
Income tax expense 594 253
Net income $1,211 $478
Per share data:
Net income $0.24 $0.10
Weighted average shares outstanding 5,005,686 4,998,700
See accompanying notes to Condensed Consolidated Financial Statements.
</TABLE>
Page 5
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
CENTRAL ILLINOIS FINANCIAL CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ending September 30, 1996 and 1995
(Unaudited, in thousands)
<TABLE>
<S> <C> <C>
Cash flows from operating activities: 1996 1995
Net income $3,310 $2,388
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 876 901
Debt and equity securities amortization, net 135 94
Provision for loan losses 375 150
Debt and equity securities gains 0 (3)
(Gain) loss on sales of loans, net (197) 51
Gain on sale of subsidiary 0 (570)
(Gain) loss on premises and equipment, net 2 (1)
Decrease (increase) in accrued interest receivable 44 (677)
(Decrease) increase in accrued interest payable (560) 349
Decrease in other assets 403 1,076
Decrease in other liabilities (76) (672)
Decrease (increase) in mortgage loans held-for-sale 336 (8,108)
Stock appreciation rights 3 88
Net cash provided by (used in) operating
activities 4,651 (4,934)
Investing activities:
Net decrease (increase) in loans 34,371 (7,313)
Proceeds from maturity of investments in debt securities:
Held-to-maturity 11,838 18,596
Available-for-sale 23,438 17,651
Proceeds from sales of investments in debt and equity securities:
Available-for-sale 0 2,717
Other equity securities 718 0
Purchases of investments in debt and equity securities:
Held-to-maturity (8,399) (9,231)
Available-for-sale (64,648) (15,269)
Other equity securities (32) 0
Principal paydowns from mortgage-backed and mortgage-related
securities
Held-to-maturity 353 509
Available-for-sale 746 1,228
Purchases of premises and equipment (667) (1,747)
Proceeds from sale of premises and equipment 0 2
Net cash provided by (used in) investing
activities (2,282) 7,143
Financing activities:
Net decrease in demand and savings deposits (6,935) (18,433)
Net decrease in time deposits $100 and over (18,390) (3,177)
Net (decrease) increase in other time deposits (22,634) 18,727
Net increase (decrease) in federal funds purchased and
securities sold under repurchase agreements 6,149 (4,402)
Dividends paid (378) (483)
Net Treasury Stock transactions (378) 0
Net change in common stock (3) 3
Net cash used in financing activities (42,569) (7,765)
Net decrease in cash and cash equivalents (40,200) (5,556)
Cash and cash equivalents at beginning of period 80,700 36,486
Cash and cash equivalents at end of period $40,500 $30,930
Additional cash flows information:
Interest paid 13,856 12,598
Income taxes paid 972 1,490
Transfer of mortgage loans held-for-sale to loans 8,175 0
See accompanying notes to Condensed Consolidated Financial Statements.
</TABLE>
Page 6
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
CENTRAL ILLINOIS FINANCIAL CO., INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements
have been prepared in accordance with the instructions to Form 10-Q and
therefore do not include all information and footnotes necessary for fair
presentation of financial position, results of operations, and cash flows in
conformity with generally accepted accounting principles.
In the opinion of management, the Condensed Consolidated Financial
Statements of Central Illinois Financial Co., Inc. (the "Company") and
subsidiaries as of September 30, 1996 and for the three-month and nine-month
periods ended September 30, 1996 and 1995 include all adjustments necessary
for fair presentation of the results of those periods. All such adjustments
are of a normal recurring nature.
Results of operations for the three-month and nine-month periods ended
September 30, 1996 are not necessarily indicative of the results which may be
expected for the year ended December 31, 1996.
NOTE 2. BUSINESS COMBINATION
On December 13, 1994, BankIllinois Financial Co. and Central Illinois
Financial Corporation entered into an Agreement and Plan of Merger which
provided for a "merger of equals" between the two companies, structured as a
merger of the two companies into the Company. The merger, which was
accounted for as a pooling of interests, was completed on June 30, 1995.
Accordingly, prior period Condensed Consolidated Financial Statements have
been restated as though the prior entities had been consolidated for all
periods presented.
NOTE 3. STOCK DIVIDEND
At its regular board meeting on March 12, 1996, the Board of Directors
of the Company declared a one-for-twenty, or five percent, common stock
dividend. The record date of the stock dividend was May 1, 1996, and the
distribution date, May 15, 1996. The accompanying unaudited Condensed
Consolidated Financial Statements have been restated to take the stock
dividend into account.
Page 7
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
NOTE 4. MORTGAGE LOANS HELD-FOR-SALE
During September 1996, the Company transferred approximately $8,175,000
of mortgage loans held-for-sale to the Company's loan portfolio with the
intent to hold until maturity. The loans were recorded at the lower of cost
or fair market value at the date of transfer. Unrealized holding losses of
approximately $16,000 will be accreted into earnings over the remaining life
of the mortgages as a yield adjustment.
NOTE 5. NEW ACCOUNTING RULES AND REGULATIONS
During June 1996, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Liabilities and
Extinguishment of Liabilities" ("SFAS 125"). SFAS 125 provides accounting
and reporting standards for transfers of financial assets and extinguishments
of liabilities. Those standards are based on 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,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. This Statement provides
consistent standards for distinguishing transfers of financial assets that
are sales from transfers that are secured borrowings. SFAS 125 is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and it is to be applied
prospectively. Earlier or retroactive application is not permitted. The
Company does not anticipate that the adoption of SFAS 125 will have a
significant impact on its financial statements.
Page 8
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
ASSETS AND LIABILITIES
Total assets decreased $40,899,000, or 7.9%, from $520,586,000 at
December 31, 1995 to $479,687,000 at September 30, 1996. Decreases in cash
and due from banks, federal funds sold, investments in securities held-to-
maturity, other equity securities, and loans, offset somewhat by an increase
in securities available-for-sale, resulted in the decrease in assets.
Federal funds sold decreased $36,800,000, or 68.4%, at September 30,
1996 compared to December 31, 1995. This decrease was a result of excess
federal funds sold being used to purchase securities available-for-sale as
well as fund the decrease in deposits.
The decrease in cash and due from banks of $3,400,000, or 12.6%, at
September 30, 1996 compared to December 31, 1995 was attributable to a
smaller dollar amount of deposit items in the process of collection at
September 30, 1996 compared to December 31, 1995.
Investments in equity securities decreased $686,000, or 28.4%, at
September 30, 1996 compared to December 31, 1995. This decrease was
primarily a result of the sale of FHLB stock. Investments in debt securities
held-to-maturity decreased $3,874,000, or 18.1%, at September 30, 1996
compared to December 31, 1995. This decrease was a result of investments
maturing and the proceeds being reinvested in securities available-for-sale,
which increased $39,444,000, or 53.7%, from December 31, 1995 to September
30, 1996.
Mortgage loans held-for-sale decreased $8,314,000, or 88.2%, from
December 31, 1995 to September 30, 1996. The decrease was a direct result of
management's decision in September that all mortgage loans not committed for
sale should be held in the Company's loan portfolio. These loans were
transferred with the intention of holding them until maturity. Included in
the transfer were approximately $7,628,000 of adjustable-rate mortgages and
$547,000 of fixed-rate mortgages. Management's intention is to hold few
fixed-rate mortgages in the Company's portfolio.
Loans decreased $26,865,000, or 8.5%, from December 31, 1995 to
September 30, 1996. Included in the decrease were a $9,769,000, or 8.1%,
decrease in commercial, financial, and agricultural loans, a $407,000, or
0.3%, decrease in real estate loans, and a $16,689,000, or 24.4%, decrease in
installment and consumer loans. Management has expended substantial time
reviewing the Company's lending process in the months following the merger.
Much of the decrease in loans can be attributed to management's emphasis on
appropriate loan structure and pricing as well as a competitive local lending
environment.
Total deposits decreased $47,959,000, or 11.4%, from $419,157,000 at
December 31, 1995 to $371,198,000 at September 30, 1996. The decrease
includes a $12,778,000, or 19.2%, decrease in noninterest bearing demand
deposits, a $5,420,000, or 22.6%, decrease in savings deposits, an
$18,390,000, or 42.9%, decrease in time deposits $100,000 and over, and a
Page 9
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
decrease of $22,634,000, or 12.7%, in other time deposits. These decreases
were somewhat offset by an increase of $11,263,000, or 10.5%, in interest
bearing demand deposits. The decrease in deposits was attributable to
management's emphasis on appropriate pricing in a competitive market as well
as some seasonal run-off. Total deposits were $391,794,000 at September 30,
1995 compared to $371,198,000 at September 30, 1996.
CAPITAL
Total stockholders' equity increased $2,294,000 from December 31, 1995
to September 30, 1996. The change is summarized as follows:
(IN THOUSANDS)
Stockholders' equity, December 31, 1995 $48,408
Net income 3,310
Purchase of Treasury Stock (378)
Purchase of fractional shares related to stock dividend (3)
Stock appreciation rights 3
Change in unrealized holding gain (loss) on
investments in debt and equity securities
available-for-sale (638)
Stockholders' equity, September 30, 1996 $50,702
BankIllinois, the Company's wholly owned subsidiary (the "Bank"), is
subject to various regulatory capital requirements administered by federal
banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on the Bank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Qualitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set forth
in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes that the Bank,
as of September 30, 1996, meets all capital adequacy requirements to which it
is subject.
As of September 30, 1996, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well capitalized, the Bank must maintain minimum total risk-based, Tier I
risk-based and Tier I leverage ratios as set forth in the table. There are
no conditions or events since that notification that management believes have
changed the institution's category.
Page 10
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
The Company's consolidated actual capital amounts and ratios are also
presented in the table below (in thousands):
<TABLE>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1996:
Total capital
(to risk-weighted assets) $55,070 17.6% =>$25,026 =>8.0% =>$31,283 =>10.0%
Tier I capital
(to risk-weighted assets) 51,139 16.3% =>12,513 =>4.0% =>18,770 =>6.0%
Tier I capital
(to average assets) 51,139 10.7% =>19,114 =>4.0% =>23,892 =>5.0%
As of December 31, 1995:
Total capital
(to risk-weighted assets) 52,517 15.0% =>27,962 =>8.0% =>34,953 =>10.0%
Tier I capital
(to risk-weighted assets) 48,148 13.8% =>13,981 =>4.0% =>20,972 =>6.0%
Tier I capital
(to average assets) 48,148 9.7% =>19,855 =>4.0% =>24,819 =>5.0%
</TABLE>
<TABLE>
RATE SENSITIVITY OF EARNING ASSETS AND INTEREST BEARING LIABILITIES
As of September 30, 1996
(In thousands)
1-30 31-90 91-180 181-365 Over
Days Days Days Days 1-year Total
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $17,000 $0 $0 $0 $0 $17,000
Debt and equity securities <F1> 3,120 7,954 18,969 17,082 85,063 132,188
Loans <F2> 80,750 21,152 25,485 38,948 125,308 291,643
Total interest earning assets $100,870 $29,106 $44,454 $56,030 $210,371 $440,831
Savings and interest bearing demand
deposits $137,203 $0 $0 $0 $0 $137,203
Time deposits 12,287 25,227 30,837 34,420 77,309 180,080
Federal funds purchased and securities
sold under repurchase agreements 36,133 5,395 150 273 471 42,422
Federal Home Loan Bank advances 0 0 0 0 9,000 9,000
Total interest bearing liabilities $185,623 $30,622 $30,987 $34,693 $86,780 $368,705
Net asset (liability) funding gap ($84,753) ($1,516) $13,467 $21,337 $123,591 $72,126
Repricing gap 0.54 0.95 1.43 1.62 2.42 1.20
Cumulative repricing gap 0.54 0.60 0.71 0.82 1.20 1.20
<FN>
<F1> Debt and equity securities include securities available-for-sale.
<F2> Loans include mortgage loans held-for-sale.
</FN>
</TABLE>
Page 11
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
At September 30, 1996, the Company was liability-sensitive due to the
levels of savings and interest bearing demand deposits, short-term time
deposits, federal funds purchased and securities sold under repurchase
agreements. As such, the effect of a decrease in the interest rate for all
interest earning assets and interest bearing liabilities of 100 basis points
would increase annualized net interest income by approximately $848,000 in
the 1-30 days category and $863,000 in the 1-90 days category assuming no
management intervention. An increase in interest rates would have the
opposite effect for the same time periods.
LIQUIDITY
The Company was able to meet liquidity needs during the first nine
months of 1996. A review of the Condensed Consolidated Statement of Cash
Flows included in the accompanying financial statements shows that the
Company's cash and cash equivalents decreased $40,200,000 from December 31,
1995 to September 30, 1996. This decrease came from net cash used in
financing and investing activities offset by cash provided by operating
activities.
Net cash provided by operating activities reflects net earnings plus or
minus certain noncash and other adjustments to arrive at net cash provided by
operating activities. In the nine-month period ended September 30, 1996, net
cash provided by operating activities was $9,585,000 more than the net cash
provided by operating activities for the same period in 1995. The biggest
reason for the increase in 1996 over 1995 was that mortgage loans held-for-
sale decreased by $336,000 during the first nine months of 1996 compared to
an increase of $8,108,000 during the same period during 1995, a $8,444,000
decrease. The decrease in mortgage loans held-for-sale in 1996 is net of the
transfer during September 1996 of approximately $8,175,000 of mortgage loans
held-for-sale to the Company's loan portfolio with the intent to hold until
maturity. Accrued interest receivable decreased $44,000 during the first
nine months of 1996, compared to an increase of $677,000 during the same
period in 1995, a $721,000 change. In addition, other liabilities decreased
$76,000 during the first nine months of 1996 compared to a decrease of
$672,000 during the same period in 1995, a $596,000 change. Cash provided
was also positively affected by an increase in net income of $922,000 and an
increase in provision for loan losses of $225,000 during the first nine
months of 1996 compared to the same period in 1995. Cash provided from
operating activities in 1995 was also somewhat offset by the noncash gain on
disposal of subsidiary of $570,000 included in 1995 net income. Cash
provided by operating activities was offset by an decrease in accrued
interest payable of $560,000 during the first nine months of 1996 compared to
an increase of $349,000 during the same period in 1995, a change of
$909,000. Cash provided by operating activities was also offset by a
decrease in other assets of $403,000 during the first nine months of 1996
compared to a decrease of $1,076,000 during the same period in 1995, a change
of $673,000. Cash provided by operating activities was also offset by a gain
on sales of loans of $197,000 during the first nine months of 1996 compared
to a loss of $51,000 during the same period in 1995, a change of $248,000.
Net cash used in investing activities was $2,282,000 in the nine-month
period ended September 30, 1996 compared to cash provided of $7,143,000 for
the same period in 1995. This resulted from a decrease in loans for the
first nine months of 1996 of $34,371,000, a $41,684,000 change from an
increase of $7,313,000 during the same period in 1995. This
Page 12
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
increase was more than offset by purchases of investment securities,
securities held-for-sale, and other equity securities of $73,079,000 in the
nine months ended September 30, 1996. During the same time period, the
Company received proceeds from maturities of investment securities and
securities held-for-sale totaling $35,276,000. During the first nine months
of 1995, the Company had purchases of investment securities and securities
held-for-sale of $24,500,000 and proceeds from maturity of investment
securities and securities held-for-sale totaling $36,247,000. During the
first nine months of 1996, the Company received proceeds from the sale of
other equity securities of $718,000. During the same time period in 1995,
the Company received proceeds from the sale of securities held-for-sale of
$2,717,000.
Net cash used in financing activities for the first nine months of 1996
was $42,569,000 compared to cash used of $7,765,000 during the same period in
1995. Included in the increase in cash used is a decrease in total deposits
of $47,959,000 during the first nine months of 1996 compared to a decrease of
$2,883,000 during the same period in 1995. The decrease in deposits in 1996
was somewhat offset by an increase in federal funds purchased and securities
sold under repurchase agreements of $6,149,000 in 1996. Federal funds
purchased and securities sold under repurchase agreements decreased
$4,402,000 during the same period in 1995.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is based on management's evaluation of the
loan portfolio in light of national and local economic conditions, changes in
the composition and volume of the loan portfolio, changes in the volume of
past due and nonaccrual loans, and other relevant factors. The allowance for
loan losses, which is reported as a deduction from loans, is available for
loan charge-offs. The allowance is increased by the provision charged to
expense and is reduced by loan charge-offs net of loan recoveries. The
balance of the allowance for loan losses was $5,588,000 at September 30, 1996
compared to $5,882,000 at December 31, 1995. Although the allowance for loan
loss balance decreased by $294,000 since the end of 1995, a recovery of
$282,000 was received in October which increased the allowance back to the
1995 year-end level. The allowance for loan losses as a percentage of
outstanding loans was 1.9% at both September 30, 1996 and December 31, 1995.
Additionally, the allowance for loan losses as a percentage of nonperforming
assets was 125.4% at September 30, 1996 compared to 163.7% at December 31,
1995. This ratio has improved with the recent recovery since the end of the
third quarter. Management has expended substantial time on a review of the
Company's lending process in the months following the merger and believes
that the increase in nonperforming assets since December 31, 1995 is a result
of emphasis placed on early detection of problem assets and is not
necessarily an indication of deterioration in the credit quality of the
Company's loan portfolio. Management remains confident that problem assets
have been effectively identified and that the allowance for loan losses
remains adequate to absorb possible losses in the portfolio.
Page 13
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Net income for the first nine months of 1996 was $3,310,000, a $922,000,
or 38.6%, increase from the first nine months of 1995. Included in 1995
results were a $570,000 gain, net of tax, on the sale of discontinued
operations and merger and restructuring expenses, net of tax, of $1,395,000.
Net income per share per share increased $0.18, or 37.5%, to $0.66 in the
first nine months of 1996 from $0.48 in the same period of 1995.
Income from continuing operations for the first nine months of 1996 was
$3,310,000, a $1,492,000, or 82.1%, increase compared to the same period in
1995. Income from continuing operations increased $0.29 per share, or 78.4%,
to $0.66 in the first nine months of 1996 from $0.37 in the same period of
1995.
Net interest income was $1,001,000, or 7.2% less for the first nine
months of 1996 compared to 1995. Total interest income was $650,000, or 2.4%
lower in 1996 compared to 1995, and interest expense increased $351,000, or
2.7%. The increase in interest expense was primarily due to higher interest
rates on interest bearing liabilities.
The decrease in total interest income included a decrease of $2,594,000,
or 11.6%, in interest income on loans. This decrease reflects a $37,476,000,
or 11.0%, decrease in average loans outstanding during the first nine months
of 1996 compared to the same period in 1995. The decrease in total interest
income on loans was somewhat offset by increases in interest income on
federal funds and securities available-for-sale due to increased funds being
invested in these asset categories.
The provision for loan losses recorded was $375,000 during the first
nine months of 1996. This was $225,000, or 150.0%, more than the amount
recorded during the first nine months of 1995. Management has expended
considerable time since the merger in 1995 evaluating the credit quality of
the Company's loan portfolio and standardizing its credit analysis procedures
and standards. The provision during the first nine months of 1996 was based
on management's analysis of the Bank's loan portfolio and adequacy of
allowance for loan losses.
Other income increased $626,000, or 22.9%, during the first nine months
of 1996 compared to the first nine months of 1995. Included in this increase
were increases of $363,000, or 32.5%, in trust fees, and $248,000, or 486.3%,
in gains on sales of mortgage loans held-for-sale.
Total other expenses decreased $2,371,000, or 17.6%, during the first
nine months of 1996 compared to the first nine months of 1995. Included in
the decrease were decreases in salaries and employee benefits of $942,000,
equipment of $147,000, federal deposit insurance premiums of $414,000 and
other expenses of $1,123,000. The reduction in salary and employee benefits
reflected the restructuring the Company completed during 1995. Included in
the reduction of equipment expense was a reduction in computer-related
equipment expenses related to a portion of the Company's computer operation
which is now being out-sourced. The reduction in federal deposit insurance
premiums was a direct result of a reduction in premium
Page 14
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
assessments. The reduction in other includes a $914,000 decrease in merger-
related expenses which was somewhat offset by increased marketing expenses
related to an aggressive marketing campaign initiated in mid-1995.
Somewhat offsetting these decreases were increases in occupancy of
$82,000 and data processing fees of $173,000. Included in the increase in
net occupancy were expenses related to a branch opened in mid-1995 as well as
costs incurred as a result of operations being consolidated due to the
merger. The data processing increase was a result of more data processing
being out-sourced in 1996 than in 1995.
Income from discontinued operations decreased to zero due to the
conclusion of a sales agreement relating to the operations that were
discontinued. In 1992, the Company divested its interest in a wholly owned
subsidiary, and the total sales price was based upon the annual operating
revenues of the former subsidiary for the period July 1, 1992 through June
30, 1995 up to a maximum certain dollar amount. All remaining gains on this
sale were recognized during the first quarter of 1995. Thus, no income from
discontinued operations was recognized for the nine months ended September
30, 1996.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
Net income for the third quarter of 1996 was $1,211,000, a $733,000, or
153.3%, increase compared to the same period in 1995. Included in 1995
results were merger and restructuring expenses, net of tax, of $481,000. Net
income per share increased $0.14, or 140.0%, to $0.24 in 1996 from $0.10 in
1995.
Net interest income was $226,000, or 5.0% less for the third quarter of
1996 compared to 1995. Total interest income was $551,000, or 6.0% lower in
the third quarter of 1996 compared to the third quarter of 1995, and interest
expense decreased $325,000, or 7.0%, during the same periods.
The decrease in total interest income of $551,000 included a decrease of
$1,271,000, or 16.5%, in interest income on loans. This decrease is
attributable to the decrease in average loans outstanding during the third
quarter of 1996 compared to the third quarter of 1995. The decrease in
interest income on loans was somewhat offset by an increase in interest
income on securities available-for-sale due to increased funds being invested
in this asset category.
The provision for loan losses recorded was $75,000 during the third
quarter of both 1996 and 1995. The provision was based on management's
analysis of the Bank's loan portfolio and adequacy of allowance for loan
losses. Management has expended considerable time since the merger in 1995
evaluating the credit quality of the Company's loan portfolio and
standardizing its credit analysis procedures and standards.
Other income increased $321,000, or 39.9%, during the third quarter of
1996 compared to the third quarter of 1995. Included in this increase was an
increase of $244,000, or 393.6%, in gains on mortgage loans held-for-sale.
Page 15
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
Total other expenses decreased $979,000, or 21.6%, during the third
quarter of 1996 compared to the third quarter of 1995. Included in the
decrease were decreases in salaries and employee benefits of $652,000,
occupancy of $12,000, equipment of $39,000, and other expenses of $340,000.
The reduction in salary and employee benefits is attributable to the
restructuring the Company completed during 1995. Included in the reduction
of equipment expense is a reduction in computer-related equipment expenses
related to a portion of the Company's computer operation which is now being
out-sourced. The reduction in other is attributable to efficiencies gained
from the consolidation as well as a $112,000 decrease in merger-related
expenses included in 1995.
Somewhat offsetting these decreases were increases in data processing
fees of $40,000 and federal deposit insurance premiums of $24,000. The
increase in federal deposit insurance premiums was a direct result of a
refund in premium assessments in the third quarter of 1995. The data
processing increase was a result of more data processing being out-sourced in
1996 than in 1995.
RECENT REGULATORY DEVELOPMENTS
On September 30, 1996, President Clinton signed into law the "Economic
Growth and Regulatory Paperwork Reduction Act of 1996" (the "Regulatory
Reduction Act"). Subtitle G of the Regulatory Reduction Act consists of the
"Deposit Insurance Funds Act of 1996" (the "DIFA"). The DIFA provides for a
one-time special assessment on each depository institution holding deposits
subject to assessment by the FDIC for the Savings Association Insurance Fund
(the "SAIF") in an amount which, in the aggregate, will increase the
designated reserve ratio of the SAIF (i.e., the ratio of the insurance
reserves of the SAIF to total SAIF-insured deposits) to 1.25% on October 1,
1996. Subject to certain exceptions, the special assessment is payable in
full on November 27, 1996. The Bank holds no SAIF-assessable deposits and,
therefore, is not subject to the special assessment.
Prior to the enactment of the DIFA, a substantial amount of the SAIF
assessment revenue was used to pay the interest due on bonds issued by the
FICO, the entity created in 1987 to finance the recapitalization of the
Federal Savings and Loan Insurance Corporation, the SAIF's predecessor
insurance fund. Pursuant to the DIFA, the interest due on outstanding FICO
bonds will be covered by assessments against both SAIF and BIF member
institutions beginning January 1, 1997. Between January 1, 1997 and December
31, 1999, FICO assessments against BIF-member institutions, such as the Bank,
cannot exceed 20% of the FICO assessments charged SAIF-member institutions.
From January 1, 2000 until the FICO bonds mature in 2019, FICO assessments
will be shared by all FDIC-insured institutions on a pro rata basis. The
FDIC estimates that the FICO assessments for the period January 1, 1997
through December 31, 1999 will be approximately 0.013% of deposits for BIF
members versus approximately 0.064% of deposits for SAIF members, and will be
less than 0.025% of deposits thereafter.
The DIFA also provides for a merger of the BIF and the SAIF on January
1, 1999, provided there are no state or federally chartered, FDIC-insured
savings associations on that date. To facilitate the merger of the BIF and
the SAIF, the DIFA directs the Treasury Departments to conduct a study on the
development of a common charter and to submit a report,
Page 16
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
along with appropriate legislative recommendations, to the Congress by March
31, 1997.
In addition to the DIFA, the Regulatory Reduction Act includes a number
of statutory changes designed to eliminate duplicative, redundant or
unnecessary regulatory requirements. Among other things, the Regulatory
Reduction Act establishes streamlined notice procedures for the commencement
of new non-banking activities by bank holding companies, establishes time
frames within which the FDIC must act on applications by state banks to
engage in activities which, although permitted for the state bank under
applicable state law, are not permissible activities for national banks, and
excludes ATM closures and certain branch office relocations from the prior
notice requirements applicable to branch closings. The Regulatory Reduction
Act also clarifies the liability of a financial institution, when acting as a
lender or in a fiduciary capacity, under the federal environmental clean-up
laws. Although the full impact of the Regulatory Reduction Act on the
operations of the Company and the Bank cannot be determined at this time,
management believes that the legislation will reduce compliance costs to some
extent and allow the Company and the Bank somewhat greater operating
flexibility.
Page 17
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The are no material pending legal proceedings to which the Company or 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
a. Exhibits
27. Financial Data Schedule
b. Reports
On August 6, 1996, a report was filed on Form 8-K, dated July 30, 1996, to
report under Item 5 regarding a change in auditors for the fiscal year ending
December 31, 1996.
On August 9, 1996, amendment no. 1 to the Form 8-K dated July 30, 1996 was
filed. The purpose of the amendment was to correct the EDGAR coding of the
original Form 8-K.
On August 20, 1996, amendment no. 2 to the Form 8-K dated July 30, 1996 was
filed. The purpose of the amendment was the submission of the required
letter from the Company's former auditors under Item 7 of the Form 8-K.
Page 18
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CENTRAL ILLINOIS FINANCIAL CO., INC.
Date:November 15, 1996
By: /s/ David B. White
Executive Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 23,500
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 17,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 114,632
<INVESTMENTS-CARRYING> 17,556
<INVESTMENTS-MARKET> 17,595
<LOANS> 286,055<F1>
<ALLOWANCE> 5,588
<TOTAL-ASSETS> 479,687
<DEPOSITS> 371,198
<SHORT-TERM> 42,422
<LIABILITIES-OTHER> 6,365
<LONG-TERM> 9,000
0
0
<COMMON> 50
<OTHER-SE> 50,652
<TOTAL-LIABILITIES-AND-EQUITY> 479,687
<INTEREST-LOAN> 19,747
<INTEREST-INVEST> 4,994
<INTEREST-OTHER> 1,549
<INTEREST-TOTAL> 26,290
<INTEREST-DEPOSIT> 11,345
<INTEREST-EXPENSE> 13,296
<INTEREST-INCOME-NET> 12,994
<LOAN-LOSSES> 375
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,065
<INCOME-PRETAX> 4,915
<INCOME-PRE-EXTRAORDINARY> 4,915
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,310
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.66
<YIELD-ACTUAL> 7.78
<LOANS-NON> 2,914
<LOANS-PAST> 555
<LOANS-TROUBLED> 165
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,882
<CHARGE-OFFS> 900
<RECOVERIES> 231
<ALLOWANCE-CLOSE> 5,588
<ALLOWANCE-DOMESTIC> 5,588
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Net of allowance for loan losses of $5,588.
</FN>
</TABLE>
