Attached files
| file | filename |
|---|---|
| 8-K/A - 8-K/A - FIRST MID BANCSHARES, INC. | form8ka-081415.htm |
| EX-99.2 - EXHIBIT 99.2 - FIRST MID BANCSHARES, INC. | ex992_081415a.htm |
| EX-23.1 - EXHIBIT 23.1 - FIRST MID BANCSHARES, INC. | ex231_081415a.htm |
| EX-2.2 - EXHIBIT 2.2 - FIRST MID BANCSHARES, INC. | ex22_081415a.htm |
Exhibit 99.1
ONB BRANCHES |
Financial Statements |
For the Year Ended December 31, 2014 |
and Six Months Ended June 30, 2015 (unaudited) and 2014 (unaudited) |
Page | |
Table of Contents | Number |
Report of Independent Registered Public Accounting Firm | 2 |
Statements of Assets Acquired and Liabilities Assumed | 3 |
Statements of Revenues and Direct Expenses | 4 |
Notes to Financial Statements | 5 |
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and Stockholders
First Mid-Illinois Bancshares, Inc.
Mattoon, Illinois
We have audited the accompanying statement of assets acquired and liabilities assumed by First Mid-Illinois Bank & Trust, N.A. (a wholly owned subsidiary of First Mid-Illinois Bancshares, Inc. (Company)) as of December 31, 2014 and the related statement of revenues and direct expenses for the year then ended pursuant to the purchase and assumption agreement dated January 30, 2015. The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Our audit included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of assets acquired and liabilities assumed and statement of revenues and direct expenses were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the Current Report on Form 8-K/A of First Mid-Illinois Bancshares, Inc. as described in Note 1 and are not intended to be a presentation of financial position or results of operations.
In our opinion, the financial statements referred to above present fairly, in all material respects, the assets acquired and liabilities assumed as of December 31, 2014, and the results of its revenues and direct expenses for the year ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
Decatur, Illinois
October 23, 2015
ONB Branches | ||||||
Statements of Assets Acquired and Liabilities Assumed | ||||||
(in thousands) | ||||||
(unaudited) | ||||||
June 30, 2015 | December 31, 2014 | |||||
Assets Acquired | ||||||
Cash and cash equivalents | $ | 4,919 | $ | 4,385 | ||
Loans | 160,363 | 158,930 | ||||
Allowance for loan losses | (1,712 | ) | (1,630 | ) | ||
Net loans | 158,651 | 157,300 | ||||
Interdivisional investment funds | 320,402 | 341,333 | ||||
Interest receivable | 462 | 512 | ||||
Premises and equipment | 4,292 | 4,117 | ||||
Other assets | 954 | 1,063 | ||||
Total assets acquired | $ | 489,680 | $ | 508,710 | ||
Liabilities Assumed | ||||||
Deposits: | ||||||
Non-interest bearing | $ | 106,163 | $ | 106,210 | ||
Interest bearing | 378,070 | 394,480 | ||||
Total deposits | 484,233 | 500,690 | ||||
Securities sold under agreements to repurchase | 4,892 | 7,590 | ||||
Interest payable | 122 | 120 | ||||
Other liabilities | 433 | 310 | ||||
Total liabilities assumed | $ | 489,680 | $ | 508,710 | ||
See accompanying notes to financial statements. | ||||||
ONB Branches | |||||||||
Statements of Revenues and Direct Expenses | |||||||||
For the year ended December 31, 2014 and | |||||||||
Six Months Ended June 30, 2015 (unaudited) and 2014 (unaudited) | |||||||||
(in thousands) | |||||||||
(Unaudited) | |||||||||
Year Ended | Six Months Ended | ||||||||
December 31, 2014 | June 30, 2015 | June 30, 2014 | |||||||
Interest income: | |||||||||
Interest and fees on loans | $ | 5,314 | $ | 2,889 | $ | 2,657 | |||
Interest on investment of interdivisional funds | 3,447 | 1,618 | 1,715 | ||||||
Total interest income | 8,761 | 4,507 | 4,372 | ||||||
Interest expense: | |||||||||
Interest on deposits | 1,138 | 567 | 569 | ||||||
Interest on securities sold under agreements to repurchase | 3 | 2 | 2 | ||||||
Total interest expense | 1,141 | 569 | 571 | ||||||
Net interest income | 7,620 | 3,938 | 3,801 | ||||||
Provision for loan losses | 208 | 82 | 104 | ||||||
Net interest income after provision for loan losses | 7,412 | 3,856 | 3,697 | ||||||
Other income: | |||||||||
Service charges | 3,292 | 1,400 | 1,646 | ||||||
Other | 4,230 | 2,203 | 2,115 | ||||||
Total other income | 7,522 | 3,603 | 3,761 | ||||||
Other expense: | |||||||||
Salaries and employee benefits | 4,880 | 2,472 | 2,440 | ||||||
Net occupancy and equipment expense | 2,805 | 1,352 | 1,403 | ||||||
FDIC insurance expense | 111 | 59 | 56 | ||||||
Stationery and supplies | 88 | 30 | 44 | ||||||
Legal and professional | 101 | 1 | 51 | ||||||
Marketing and promotion | 138 | 71 | 69 | ||||||
Other | 688 | 286 | 344 | ||||||
Total other expense | 8,811 | 4,271 | 4,407 | ||||||
Total revenue in excess of direct expenses | $ | 6,123 | $ | 3,188 | $ | 3,051 | |||
See accompanying notes to financial statements. | |||||||||
ONB Branches
Notes to Financial Statements
(Table dollar amounts in thousands, except share data)
Note 1 - Summary of Significant Accounting Policies
Basis of Accounting
The accompanying financial statements include the accounts of the ONB Branches that were acquired and assumed by First Mid-Illinois Bank & Trust, N.A. (“First Mid Bank”), a national bank and a wholly-owned subsidiary of First Mid-Illinois Bancshares, Inc. (“the Company”). The accounting and reporting policies of the ONB Branches conform to accounting principles generally accepted in the United States of America. Following is a description of the more significant of these policies.
Prior to August 14, 2015, the ONB Branches operated as 12 bank branches located in Carbondale, Carmi, Carterville, De Soto, Harrisburg, Lawrenceville, Marion, Mt. Carmel, Mt. Vernon and Murphysboro, Illinois as part of Old National Bank, a national banking association having its principal offices in Evansville, Indiana. Accordingly, these financial statements are presented based on information as previously maintained and provided by Old National Bank for these branch operations. The financial statements presented are not a full set of financial statements, but rather they present assets acquired and liabilities assumed and revenues and direct expenses attributable to the branch bank operations. Further, in accordance with a request for relief submitted to the Securities and Exchange Commission to which the staff of the Securities and Exchange Commission informed the Company that it would not object, the information provided is in lieu of certain historical financial information of the acquired branches required by Rule 3-05 and Article 11 of Regulation S-X because separate, audited financial statements of the acquired branches were never prepared and the acquired branches were not operated as a distinct, stand-alone entity. The statements of revenues and direct expenses exclude costs that are not directly related to the acquired branches such as corporate overhead, interest on corporate debt and income taxes. As such, the financial statements presented are not indicative of the financial condition or results of operations of the acquired branches going forward due to omission of various expenses and changes in business practices.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that affect the amount of assets and liabilities as of the date of the statements of assets acquired and liabilities assumed and revenues and direct expenses for the reported periods. Actual results could differ from these estimates.
Fair Value Measurements
The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine fair value. When observable market prices do not exist, fair value is estimated.
SFAS No. 157, Fair Value Measurements, which was codified into ASC 820, establishes a framework for measuring the fair value of financial instruments that considers the attributes specific to particular assets or liabilities and establishes a three-level hierarchy for determining fair value based on the transparency of inputs to each valuation as of the fair value measurement date. The three levels are defined as follows:
• | Level 1 - quoted prices (unadjusted) for identical assets or liabilities in active markets. |
• | Level 2 - inputs include quoted prices for similar assets and liabilities in active markets, quoted prices of identical or similar assets or liabilities in markets that are not active, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
• | Level 3 - inputs that are unobservable and significant to the fair value measurement. |
From time to time, assets or liabilities may be transferred within hierarchy levels due to changes in availability of observable market inputs to measure fair value at the measurement date. Transfers into or out of hierarchy levels are based upon the fair value at the beginning of the reporting period. Additional information regarding the fair value of the financial instruments presented in these financial statements can be found in Note 7 - “Disclosures of Fair Values of Financial Instruments” of these financial statements.
Cash and Cash Equivalents
Cash and cash equivalents are defined as cash on hand or in banks and cash items.
Loans
Loans are stated at the principal amount outstanding net of unearned discounts, unearned income and the allowance for loan losses. Interest and fees on loans are recognized as income using the interest method. Loan origination fees and costs are deferred and accreted to interest income over the estimated life of the loans using the interest method.
The accrual of interest on loans is discontinued when it appears that interest or principal may not be paid in a timely manner in the normal course of business or once principal or interest payments become 90 days past due under the contractual terms of the loan agreement. Generally, payments received on nonaccrual and impaired loans are recorded as principal reductions. Interest income is recognized after all delinquent principal has been repaid or an improvement in the condition of the loan has occurred that warrants resumption of interest accruals.
A loan is considered impaired when it is probable that all amounts due, both principal and interest, according to the contractual terms of the loan agreement will not be collected. Loans on nonaccrual status and restructured loans are considered to be impaired loans.
All loans included in the financial statement presentation are considered performing as of the financial statement dates given that the Company acquired only performing loans and, as such, no accounting for impairment or unaccrued interest was included in these financial statements.
Allowance for Loan Losses
The financial information previously maintained and provided by Old National Bank for these branch operations did not include an allowance for loan losses for the loans acquired; therefore the Company has estimated this amount using its own analysis and methodology. See Note 3 - “Allowance For Loan Losses” for additional information regarding this estimate. Following is First Mid Bank’s accounting policy for the allowance for loan losses.
The allowance for loan losses is maintained at a level deemed appropriate by management to provide for probable losses inherent in the loan portfolio. The allowance is based on a continuing review of the loan portfolio, the underlying value of the collateral securing the loans, current economic conditions and past loan loss experience. Loans that are deemed to be uncollectible are charged off to the allowance. The provision for loan losses and recoveries are credited to the allowance.
Management, considering current information and events regarding the borrowers’ ability to repay their obligations, considers a loan to be impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the note agreement, including principal and interest. The amount of the impairment is measured based on the fair value of the collateral, if the loan is collateral dependent, or alternatively, at the present value of expected future cash flows discounted at the loan’s effective interest rate. Certain homogeneous loans such as residential real estate mortgage and installment loans are excluded from the impaired loan provisions. Interest income on impaired loans is recorded when cash is received and only if principal is considered to be fully collectible.
Interdivisional Investment Funds
The amount of interdivisional investment funds represents the amount of excess deposits and other liabilities assumed over the loans and other assets acquired. An estimated yield of 1% was assumed on these funds based on a blended rate of potential investments for these funds such as federal funds and U.S. Treasury securities.
Premises and Equipment
Land is carried at cost. Buildings and improvements, leasehold improvements and furniture and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is charged to expense and determined principally by the straight‑line method over the estimated useful lives of the assets.
The estimated useful lives for each major depreciable classification of premises and equipment are as follows:
Buildings and improvements | 15 - 40 years |
Leasehold improvements | 6-18 years |
Furniture and equipment | 5-7 years |
Adoption of New Accounting Guidance
Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606): Revenue from Contracts with Customers ("ASU 2014-09"). In May 2014, FASB issued ASU 2014-09 which creates a new topic in the FASB Accounting Standards Codification(R) ("ASC"), Topic 606. In addition to superseding and replacing nearly all existing U.S. GAAP revenue recognition guidance, including industry-specific guidance, ASU 2014-09 establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue. In addition, ASU 2014-09 adds a new Subtopic to the ASC, Other Assets and Deferred Costs: Contracts with Customers ("ASC 340-40"), to provide guidance on costs related to obtaining a contract with a customer and costs incurred in fulfilling a contract with a customer that are not in the scope of another ASC Topic. The new guidance does not apply to certain contracts within the scope of other ASC Topics, such as lease contracts, insurance contracts, financing arrangements, financial instruments, guarantee other than product or service warranties, and non-monetary exchanges between entities in the same line of business to facilitate sales to customers. The amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.
Note 2 - Loans
A summary of loans at June 30, 2015 (unaudited) and December 31, 2014 follows (in thousands):
June 30, 2015 | December 31, 2014 | |||||
Construction and land development | $ | 2,167 | $ | 1,705 | ||
Farm loans | 5,251 | 6,553 | ||||
1-4 Family residential properties | 63,012 | 67,110 | ||||
Multifamily residential properties | 771 | 1,754 | ||||
Commercial real estate | 9,830 | 10,728 | ||||
Loans secured by real estate | 81,031 | 87,850 | ||||
Agricultural loans | 4,761 | 6,126 | ||||
Commercial and industrial loans | 38,086 | 37,236 | ||||
Consumer loans | 33,719 | 24,655 | ||||
All other loans | 2,766 | 3,063 | ||||
Total loans | $ | 160,363 | $ | 158,930 | ||
Impaired loans are defined as those loans where it is probable that amounts due according to contractual terms, including principal and interest, will not be collected. Both nonaccrual and restructured loans meet this definition. The Company only acquired performing loans and, as such, there were no impaired loans (including nonaccrual, past due ninety days or more or renegotiated loans) as of the financial statement periods.
There were no concentrations as defined by the regulatory agencies for the periods shown above.
Note 3 - Allowance for Loan Losses
The allowance for loan losses represents an estimate of the reserve necessary to adequately account for probable losses that could ultimately be realized from current loan exposures. The financial information previously maintained and provided by Old National Bank for the ONB Branches acquired did not include an allocation for an allowance for loan losses for the loans acquired. Therefore, the Company has estimated this amount using its own analysis and methodology.
In determining the adequacy of the allowance, the Company relies predominantly on a disciplined credit review and approval process. The review process is directed by overall lending policy and is intended to identify, at the earliest possible stage, borrowers who might be facing difficulty. Before acquisition of the ONB Branch loans, the Company performed a similar process to determine that only performing loans, considered pass rated, were purchased. Because all loans were deemed performing, no specific borrower analysis was prepared in determining an allowance for loan losses for the loans purchased. Rather the Company’s risk factors, allocated by loan category, for non-classified borrowers were applied to the loan categories. These factors are based on the Company’s own historical net losses, as well as, current economic conditions and industry trends. The Company believes applying these factors is a reasonable estimate of an allowance for loan losses for the ONB Branch loans presented in these financial statements.
The following table presents the balance in the allowance for loan losses by portfolio segment as of June 30, 2015 (unaudited) and December 31, 2014 (in thousands):
June 30, 2015 | December 31, 2014 | |||||
Commercial / Commercial Real Estate | $ | 841 | $ | 856 | ||
Agriculture / Agriculture Real Estate | 75 | 95 | ||||
Residential Real Estate | 237 | 251 | ||||
Consumer | 527 | 396 | ||||
Unallocated | 32 | 32 | ||||
Total | $ | 1,712 | $ | 1,630 | ||
Note 4 - Premises and Equipment
Premises and equipment at June 30, 2015 (unaudited) and December 31, 2014 consisted of:
June 30, 2015 | December 31, 2014 | |||||
Land | $ | 353 | $ | 353 | ||
Buildings and improvements | 3,069 | 3,069 | ||||
Furniture and equipment | 1,998 | 1,856 | ||||
Leasehold improvements | 2,014 | 1,705 | ||||
Subtotal | 7,434 | 6,983 | ||||
Accumulated depreciation and amortization | 3,142 | 2,866 | ||||
Total | $ | 4,292 | $ | 4,117 | ||
Depreciation and amortization expense was $275,000 and $224,000 for the six months ended June 30, 2015 and 2014 (unaudited), respectively, and $447,000 for the year ended December 31, 2014.
Note 5 - Deposits
As of June 30, 2015 (unaudited) and December 31, 2014 deposits consisted of the following:
June 30, 2015 | December 31, 2014 | |||||
Demand deposits: | ||||||
Non-interest bearing | $ | 106,163 | $ | 106,210 | ||
Interest-bearing | 172,632 | 181,487 | ||||
Savings | 128,770 | 131,158 | ||||
Money market | 24,366 | 26,789 | ||||
Time deposits | 52,302 | 55,046 | ||||
Total deposits | $ | 484,233 | $ | 500,690 | ||
Total interest expense on deposits for the six months ended June 20, 2015 (unaudited) and the year ended December 31, 2014 was as follows:
June 30, 2015 | December 31, 2014 | |||||
Interest-bearing demand | $ | 9 | $ | 20 | ||
Savings | 157 | 332 | ||||
Money market | 6 | 14 | ||||
Time deposits | 395 | 772 | ||||
Total | $ | 567 | $ | 1,138 | ||
As of June 30, 2015 (unaudited) and December 31, 2014, the aggregate amount of time deposits in denominations of more than $100,000 and the total interest expense on such deposits was as follows:
June 30, 2015 | December 31, 2014 | |||||
Outstanding | $ | 11,071 | $ | 10,789 | ||
Interest expense for the year | $ | 175 | $ | 160 | ||
The following table shows the amount of maturities for all time deposits as of June 30, 2015 (unaudited) and December 31, 2014:
June 30, 2015 | December 31, 2014 | |||||
Less than 1 year | $ | 25,568 | $ | 27,048 | ||
1 year to 2 years | 14,724 | 16,959 | ||||
2 years to 3 years | 4,908 | 4,251 | ||||
3 years to 4 years | 4,262 | 3,779 | ||||
4 years to 5 years | 2,035 | 2,056 | ||||
Over 5 years | 805 | 953 | ||||
Total | $ | 52,302 | $ | 55,046 | ||
Note 6 - Disclosure of Fair Values of Financial Instruments
The following methods were used to estimate fair value of all financial instruments recognized in the accompanying statements of assets acquired and liabilities assumed at amounts other than fair value.
Cash and cash equivalents, interest receivable, interest payable and securities sold under agreements to repurchase
The carrying amount approximates fair value.
Loans
Loans have been valued using a discounted present value of projected cash flow. The discount rate used in these calculations is the current rate at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The carrying amount of accrued interest approximates it fair value.
Deposits
Deposits include demand deposits, savings accounts, and certain money market deposits. The carrying amount of these deposits approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.
The following table presents estimated fair values of the ONB Branches financial instruments in accordance with FAS 107-1 and APB 28-1, codified with ASC 805 as of June 30, 2015 (unaudited) and December 31, 2014.
Carrying | Fair | ||||||||||||||
June 30, 2015 | Amount | Value | Level 1 | Level 2 | Level 3 | ||||||||||
Financial Assets | |||||||||||||||
Cash and cash equivalents | $ | 4,919 | $ | 4,919 | $ | 4,919 | $ | — | $ | — | |||||
Loans net of allowance for loan losses | 158,651 | 155,262 | — | — | 155,262 | ||||||||||
Interest receivable | 462 | 462 | — | 462 | — | ||||||||||
Financial Liabilities | |||||||||||||||
Deposits | $ | 484,233 | $ | 484,450 | $ | — | $ | 431,931 | $ | 52,519 | |||||
Securities sold under agreements to repurchase | 4,892 | 4,892 | — | 4,892 | — | ||||||||||
Interest payable | 122 | 122 | — | 122 | — | ||||||||||
December 31, 2014 | |||||||||||||||
Financial Assets | |||||||||||||||
Cash and cash equivalents | $ | 4,385 | $ | 4,385 | $ | 4,385 | $ | — | $ | — | |||||
Loans net of allowance for loan losses | 157,300 | 153,555 | — | — | 153,555 | ||||||||||
Interest receivable | 512 | 512 | — | 512 | — | ||||||||||
Financial Liabilities | |||||||||||||||
Deposits | $ | 500,690 | $ | 500,909 | $ | — | $ | 445,644 | $ | 55,265 | |||||
Securities sold under agreements to repurchase | 7,590 | 7,590 | — | 7,590 | — | ||||||||||
Interest payable | 120 | 120 | — | 120 | — | ||||||||||
Note 7 - Cash Flows
For the six months ended June 30, 2015 (unaudited) and 2014 (unaudited) and for the year ended December 31, 2014, the following cash items occurred:
Year ended | Six months ended | ||||||||
December 31, 2014 | June 30, 2015 | June 30, 2014 | |||||||
Non-cash operating items: | |||||||||
Depreciation | $ | 447 | $ | 275 | $ | 224 | |||
Provision for possible loan losses | 208 | 82 | 104 | ||||||
(Increase) decrease in accrued interest receivable | (35 | ) | 50 | (24 | ) | ||||
Increase (decrease) in accrued interest payable | (28 | ) | 2 | (16 | ) | ||||
592 | 409 | 288 | |||||||
Investing activities: | |||||||||
(Increase) decrease in loans | 3,626 | (1,433 | ) | (4,830 | ) | ||||
Additions to premises and equipment | (104 | ) | (451 | ) | — | ||||
3,522 | (1,884 | ) | (4,830 | ) | |||||
Financing activities: | |||||||||
Increase (decrease) in deposits | (3,495 | ) | (16,457 | ) | 4,848 | ||||
Increase (decrease) in repurchase agreements | 1,090 | (2,698 | ) | (109 | ) | ||||
(2,405 | ) | (19,155 | ) | 4,739 | |||||
Note 9 - Leases
The ONB Branches had several noncancellable operating leases, primarily for property rental of banking buildings that expire over the next fifteen years. These leases generally contained renewal options for periods ranging from two to five years. Rental expense for these leases was $682,000 and $671,000 for the six months ended June 30, 2015 (unaudited) and 2014 (unaudited), respectively and $1,342,000 for the year ended December 31, 2014.
Future minimum lease payments under operating leases are:
Operating Leases | |||
2015 | $ | 693 | |
2016 | 1,401 | ||
2017 | 1,414 | ||
2018 | 1,427 | ||
2019 | 1,441 | ||
Thereafter | 38,796 | ||
Total minimum lease payments | $ | 45,172 | |
Note 10 - Subsequent Events
On August 14, 2015, the ONB Branches were acquired by First Mid Bank. See Item 2.01 of this Current Report on Form 8-K for the details of this transaction.