SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
COMMISSION FILE NUMBER: 0-13368
FIRST MID-ILLINOIS BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State of incorporation)
37-1103704
(I.R.S. employer identification No.)
1515 CHARLESTON AVENUE, MATTOON, ILLINOIS 61938
(Address and Zip Code of Principal Executive Offices)
(217) 234-7454
(Registrant's telephone number, including area code)
Indicate by check mark whether the Company (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 Company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
As of August 10, 2000 2,251,268 common shares, $4.00 par value, were
outstanding.
PART I
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (unaudited) JUNE 30, December 31,
(In thousands, except share data) ................................... 2000 1999
ASSETS
Cash and due from banks:
Non-interest bearing .............................................. $ 18,966 $ 21,054
Interest bearing .................................................. -- 78
Federal funds sold .................................................. 95 710
Cash and cash equivalents ......................................... 19,061 21,842
Investment securities:
Available-for-sale, at fair value ................................. 146,468 150,157
Held-to-maturity, at amortized cost (estimated fair
value of $3,090 and $2,077 at June 30, 2000
and December 31, 1999, respectively) ............................ 3,132 2,132
Loans ............................................................... 410,166 388,319
Less allowance for loan losses ...................................... 3,133 2,939
Net loans ......................................................... 407,033 385,380
Premises and equipment, net ......................................... 15,735 16,153
Intangible assets, net .............................................. 12,739 13,340
Other assets ........................................................ 11,675 12,099
TOTAL ASSETS ...................................................... $ 615,843 $ 601,103
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing .............................................. $ 63,957 $ 60,555
Interest bearing .................................................. 425,734 424,456
Total deposits .................................................... 489,691 485,011
Federal funds purchased ............................................. -- 1,175
Securities sold under agreements to repurchase ...................... 26,121 32,308
Federal Home Loan Bank advances-short term .......................... 28,049 3,000
Federal Home Loan Bank advances-long term ........................... 10,300 18,500
Long-term debt ...................................................... 4,325 4,325
Other liabilities ................................................... 4,195 5,266
TOTAL LIABILITIES ................................................. 562,681 549,585
Stockholders' Equity:
Common stock, $4 par value; authorized 6,000,000
shares; issued 2,323,119 shares in 2000 and
2,302,022 shares in 1999 .......................................... 9,292 9,208
Additional paid-in-capital .......................................... 12,232 11,608
Retained earnings ................................................... 37,151 34,835
Deferred compensation ............................................... 1,202 1,123
Accumulated other comprehensive loss ................................ (3,234) (3,265)
Less treasury stock at cost, 69,080 shares
in 2000 and 25,235 shares in 1999 ................................. (3,481) (1,991)
TOTAL STOCKHOLDERS' EQUITY .......................................... 53,162 51,518
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................... $ 615,843 $ 601,103
See accompanying notes to unaudited consolidated financial statements
CONSOLIDATED STATEMENTS OF INCOME (unaudited) THREE MONTHS ENDED SIX MONTHS ENDED
(In thousands, except per share data) JUNE 30, JUNE 30,
2000 1999 2000 1999
INTEREST INCOME:
Interest and fees on loans ........................................... $ 8,493 $7,173 $16,658 $14,042
Interest on investment securities .................................... 2,282 2,184 4,570 4,238
Interest on federal funds sold ....................................... 26 137 63 192
Interest on deposits with
other financial institutions ....................................... 3 47 4 49
Total interest income .............................................. 10,804 9,541 21,295 18,521
INTEREST EXPENSE:
Interest on deposits ................................................. 4,377 3,895 8,610 7,595
Interest on securities sold under agreements
to repurchase ...................................................... 311 174 600 388
Interest on Federal Home Loan Bank advances .......................... 636 253 995 498
Interest on Federal funds purchased .................................. 11 5 47 7
Interest on long-term debt ........................................... 83 66 158 136
Total interest expense ............................................. 5,418 4,393 10,410 8,624
Net interest income ................................................ 5,386 5,148 10,885 9,897
Provision for loan losses ............................................ 150 150 300 300
Net interest income after provision ................................ 5,236 4,998 10,585 9,597
OTHER INCOME:
Trust revenues ....................................................... 448 464 961 945
Brokerage revenues ................................................... 138 109 275 229
Service charges ...................................................... 616 573 1,208 1,073
Mortgage banking income .............................................. 107 195 169 524
Other ................................................................ 307 346 613 684
Total other income ................................................. 1,616 1,687 3,226 3,455
OTHER EXPENSE:
Salaries and employee benefits ....................................... 2,516 2,402 5,026 4,655
Net occupancy and equipment expense .................................. 905 852 1,783 1,621
Amortization of intangible assets .................................... 300 191 602 382
Stationery and supplies .............................................. 124 189 272 363
Legal and professional ............................................... 205 283 375 507
Marketing and promotion .............................................. 249 195 406 314
Other ................................................................ 753 676 1,484 1,314
Total other expense ................................................ 5,052 4,788 9,948 9,156
Income before income taxes ........................................... 1,800 1,897 3,863 3,896
Income taxes ......................................................... 305 598 938 1,241
Net income ......................................................... $ 1,495 $1,299 $ 2,925 $ 2,655
Per share data:
Basic earnings per share ............................................. $ .66 $ .61 $ 1.29 $ 1.25
Diluted earnings per share ........................................... $ .66 $ .57 $ 1.29 $ 1.17
See accompanying notes to unaudited consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED
June 30,
(In thousands) 2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................... $ 2,925 $ 2,655
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses .......................................... 300 300
Depreciation, amortization and accretion, net ...................... 1,485 1,119
(Gain) loss on sale of other real property owned, net .............. 59 (77)
Gain on sale of mortgage loans held for sale, net .................. (129) (483)
Origination of mortgage loans held for sale ........................ (7,494) (24,940)
Proceeds from sale of mortgage loans held for sale ................. 7,113 32,717
(Increase) decrease in other assets ................................ 396 (1,543)
Increase (decrease) in other liabilities ........................... (407) 1,592
Net cash provided by operating activities ............................ 4,248 11,340
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalization of mortgage servicing rights .......................... (96) (30)
Purchases of premises and equipment .................................. (523) (1,068)
Net increase in loans ................................................ (21,443) (7,639)
Proceeds from maturities of:
Securities available-for-sale ...................................... 4,378 24,302
Securities held-to-maturity ........................................ -- 135
Purchases of:
Securities available-for-sale ...................................... -- (26,758)
Securities held-to-maturity ........................................ (1,516) (332)
Purchase of financial organization, net of cash received ............. -- 46,441
Net cash provided by (used in) investing activities .................. (19,200) 35,051
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits .................................. 4,680 (20,771)
Decrease in repurchase agreements .................................... (6,187) (4,553)
Decrease in federal funds purchased .................................. (1,175) --
Increase in short-term borrowings .................................... 25,049 --
Repayment of long-term borrowings .................................... (8,200) (4,375)
Proceeds from issuance of common stock ............................... 12 290
Purchase of treasury stock ........................................... (1,411) (159)
Dividends paid on preferred stock .................................... -- (45)
Dividends paid on common stock ....................................... (597) (515)
Net cash provided by (used in) financing activities .................. 12,171 (30,128)
Increase (decrease) in cash and cash equivalents ..................... (2,781) 16,263
Cash and cash equivalents at beginning of period ..................... 21,842 21,772
Cash and cash equivalents at end of period ........................... $ 19,061 $ 38,035
ADDITIONAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest ........................................................... $ 10,597 $ 8,747
Income taxes ....................................................... 1,430 1,524
Loans transferred to real estate owned ............................... 102 497
Dividends reinvested in common stock ................................. 695 651
See accompanying notes to unaudited consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING AND CONSOLIDATION
The unaudited consolidated financial statements include the accounts of
First Mid-Illinois Bancshares, Inc. ("Company") and its wholly-owned
subsidiaries: Mid-Illinois Data Services, Inc. ("MIDS") and First Mid-Illinois
Bank & Trust, N.A. ("First Mid Bank") and its wholly-owned subsidiary First
Mid-Illinois Insurance Services, Inc. ("First Mid Insurance"). All significant
inter-company balances and transactions have been eliminated in consolidation.
The financial information reflects all adjustments which, in the opinion of
management, are necessary to present a fair statement of the results of the
interim periods ended June 30, 2000 and 1999, and all such adjustments are of a
normal recurring nature. The results of the interim period ended June 30, 2000,
are not necessarily indicative of the results expected for the year ending
December 31, 2000.
The unaudited consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X
and do not include all of the information required by generally accepted
accounting principles for complete financial statements and related footnote
disclosures. These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
1999 Form 10-K.
COMPREHENSIVE INCOME
The Company's comprehensive income for the three month and six month
periods ended June 30, 2000 and 1999 is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30,
(In thousands) 2000 1999 2000 1999
Net income ............................... $ 1,495 $ 1,299 $ 2,925 $ 2,655
Other comprehensive income(loss):
Unrealized gain (loss) during the period 126 (2,498) 47 (3,345)
Tax effect ............................. (43) 849 (16) 1,137
Comprehensive income ..................... $ 1,578 $ (350) $ 2,956 $ 447
EARNINGS PER SHARE
Income for Basic Earnings per Share ("EPS") is adjusted for dividends
attributable to preferred stock in 1999 and is based on the weighted average
number of common shares outstanding. Diluted EPS is computed by using the
weighted average number of common shares outstanding, increased in 1999 by the
assumed conversion of the convertible preferred stock and the assumed conversion
of the stock options. On November 15, 1999, the Company issued shares of its
common stock to holders of its Series A Convertible preferred stock upon the
Company's election to convert all such preferred stock into common stock.
The components of basic and diluted earnings per common share for the three
month and six month periods ended June 30, 2000 and 1999 are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30,
2000 1999 2000 1999
BASIC EARNINGS PER SHARE:
Net income ................................ $1,495,000 $1,299,000 $2,925,000 $2,655,000
Less preferred stock dividends ............. -- (71,000) -- (142,000)
Net income available to common stockholders $1,495,000 $1,228,000 $2,925,000 $2,513,000
Weighted average common shares outstanding . 2,257,694 2,020,682 2,267,716 2,017,909
Basic Earnings per Common Share ............ $ .66 $ .61 $ 1.29 $ 1.25
DILUTED EARNINGS PER SHARE:
Net income available to common stockholders $1,495,000 $1,228,000 $2,925,000 $2,513,000
Assumed conversion of preferred stock ...... -- 71,000 -- 142,000
Net income available to common stock-
holders after assumed conversion ......... $1,495,000 $1,299,000 $2,925,000 $2,655,000
Weighted average common shares outstanding . 2,257,694 2,020,682 2,267,716 2,017,909
Assumed conversion of stock options ........ 700 8,501 2,472 7,902
Assumed conversion of preferred stock ...... -- 248,179 -- 250,604
Diluted weighted average common
shares outstanding ....................... 2,258,394 2,277,362 2,270,187 2,276,416
Diluted Earnings per Common Share .......... $ .66 $ .57 $ 1.29 $ 1.17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis is intended to provide a better
understanding of the consolidated financial condition and results of operations
of the Company and its subsidiaries for the periods ended June 30, 2000 and
1999. This discussion and analysis should be read in conjunction with the
consolidated financial statements, related notes and selected financial data
appearing elsewhere in this report.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, such as, discussions of the
Company's pricing and fee trends, credit quality and outlook, liquidity, new
business results, expansion plans, anticipated expenses and planned schedules.
The Company intends such forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and is including this statement for
purposes of these safe harbor provisions. Forward-looking statements, which are
based on certain assumptions and describe future plans, strategies and
expectations of the Company, are identified by use of the words "believe,"
"expect," "intend," "anticipate," "estimate," "project," or similar expressions.
Actual results could differ materially from the results indicated by these
statements because the realization of those results is subject to many
uncertainties including: changes in interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Company's market area and accounting principles, policies and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. Further
information concerning the Company and its business, including additional
factors that could materially affect the Company's financial results, is
included in the Company's filings with the Securities and Exchange Commission.
OVERVIEW
Net income for the three months ended June 30, 2000 was $1,495,000 ($.66
diluted EPS), an increase of $196,000 from $1,299,000 ($.57 diluted EPS) for the
same period in 1999. A summary of the factors which contributed to the changes
in net income for the three months is shown in the table below.
Net income for the six months ended June 30, 2000 was $2,925,000 ($1.29
diluted EPS), an increase of $270,000 from $2,655,000 ($1.17 diluted EPS) for
the same period in 1999. A summary of the factors which contributed to the
changes in net income for the six months is shown in the table below.
2000 VS 1999
(in thousands) THREE MONTHS SIX MONTHS
Net interest income ........................... $ 238 $ 988
Other income, including securities transactions (71) (229)
Other expenses ................................ (264) (792)
Income taxes .................................. 293 303
Increase in net income ........................ $ 196 $ 270
The following table shows the Company's annualized performance ratios for
the six months ended June 30, 2000 and 1999, as compared to the performance
ratios for the year ended December 31, 1999:
June 30, December 31,
2000 1999 1999
Return on average assets ....... .97% .97% .91%
Return on average equity ....... 11.24% 10.34% 10.14%
Return on average common equity 11.24% 10.41% 10.08%
Average equity to average assets 8.63% 9.34% 8.96%
RESULTS OF OPERATIONS
NET INTEREST INCOME
The largest source of operating revenue for the Company is net interest
income. Net interest income represents the difference between total interest
income earned on earning assets and total interest expense paid on
interest-bearing liabilities. The amount of interest income is dependent upon
many factors including the volume and mix of earning assets, the general level
of interest rates and the dynamics of changes in interest rates. The cost of
funds necessary to support earning assets varies with the volume and mix of
interest-bearing liabilities and the rates paid to attract and retain such
funds.
For purposes of the following discussion and analysis, the interest earned
on tax-exempt securities is adjusted to an amount comparable to interest subject
to normal income taxes. The adjustment is referred to as the tax-equivalent
("TE") adjustment. The Company's average balances, interest income and expense
and rates earned or paid for major balance sheet categories are set forth in the
following table (dollars in thousands):
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
ASSETS
Interest-bearing deposits $ 132 $ 4 6.09% $ 1,986 $ 49 4.93%
Federal funds sold 2,166 63 5.81% 8,272 192 4.64%
Investment securities
Taxable 121,150 3,850 6.36% 123,949 3,569 5.76%
Tax-exempt (1) 29,768 1,092 7.33% 29,033 1,013 6.98%
Loans (2)(3) 396,614 16,658 8.40% 341,868 14,042 8.21%
Total earning assets 549,830 21,667 7.88% 505,108 18,865 7.47%
Cash and due from banks 16,388 15,577
Premises and equipment 16,020 13,872
Other assets 23,924 17,787
Allowance for loan losses (3,070) (2,811)
Total assets $603,092 $549,533
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing Deposits
Demand deposits $160,459 $ 2,366 2.95% $132,046 $ 1,551 2.35%
Savings deposits 40,490 473 2.33% 39,623 442 2.23%
Time deposits 222,528 5,771 5.19% 219,548 5,602 5.10%
Securities sold under
agreements to repurchase 23,295 600 5.15% 19,641 388 3.95%
FHLB advances 31,966 995 6.22% 19,788 498 5.04%
Federal funds purchased 1,547 47 6.12% 282 7 4.98%
Long-term debt 4,325 158 7.32% 4,509 136 6.02%
Total interest-bearing
liabilities 484,610 10,410 4.30% 435,437 8,624 3.96%
Demand deposits 61,807 58,507
Other liabilities 4,638 4,258
Stockholders' equity 52,037 51,331
Total liabilities & equity $603,092 $549,533
Net interest income (TE) $11,256 $10,241
Net interest spread 3.58% 3.51%
Impact of non-interest
bearing funds .51% .55%
Net yield on interest-
earning assets (TE) 4.09% 4.06%
(1) Interest income and rates are presented on a tax-equivalent basis ("TE") assuming a
federal income tax rate of 34%.
(2) Loan fees are included in interest income and are not material.
(3) Nonaccrual loans have been included in the average balances.
Changes in net interest income may also be analyzed by segregating the
volume and rate components of interest income and interest expense. The
following table summarizes the approximate relative contribution of changes in
average volume and interest rates to changes in net interest income (TE) for the
six months ended June 30, 2000 (in thousands) as compared to the same period in
1999:
FOR THE SIX MONTHS ENDED JUNE 30,
2000 COMPARED TO 1999
INCREASE / (DECREASE)
TOTAL RATE/
CHANGE VOLUME RATE VOLUME (4)
EARNING ASSETS:
Interest-bearing deposits .......... $ (45) $ (46) $ 12 $ (11)
Federal funds sold ................. (129) (141) 48 (36)
Investment securities:
Taxable .......................... 281 (80) 369 (8)
Tax-exempt (1) ................... 79 26 52 1
Loans (2)(3) ....................... 2,616 2,248 317 51
Total interest income ............ 2,802 2,007 798 (3)
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits
Demand deposits .................. 816 335 396 85
Savings deposits ................. 31 10 20 1
Time deposits .................... 169 77 91 1
Securities sold under
agreements to repurchase ......... 212 72 118 22
FHLB advances ...................... 497 307 118 72
Federal funds purchased ............ 40 31 2 7
Long-term debt ..................... 22 (6) 29 (1)
Total interest expense ........... 1,787 826 774 187
Net interest income ................ $ 1,015 $ 1,181 $ 24 $(190)
(1) Interest income and rates are presented on a tax-equivalent basis, assuming a
federal income tax rate of 34%.
(2) Loan fees are included in interest income and are not material.
(3) Nonaccrual loans are not material and have been included in the average balances.
(4) The changes in rate/volume are computed on a consistent basis by
multiplying the change in rates with the change in volume.
On an tax equivalent basis, net interest income increased $1,015,000, or
9.9% to $11,256,000 for the six months ended June 30, 2000, from $10,241,000 for
the same period in 1999. The increase in net interest income for the six months
ended June 30, 2000, was primarily due to an increase in rates on earning assets
combined with an increase in the volume of earning assets offset by a slight
increase in the deposit rates combined with a higher deposit base.
For the six months ended June 30, 2000, average earning assets increased by
$44,722,000, or 8.9%, and average interest- bearing liabilities increased
$49,174,000, or 11.3%, compared with average balances for the six months ended
June 30, 1999.
Changes in average balances, as a percent of average earnings assets, are
shown below:
* average loans (as a percent of average earnings assets) increased 4.4%
to 72.1% for the six months ended June 30, 2000 from 67.7% for the six
months ended June 30, 1999
* average securities (as a percent of average earnings assets) decreased
2.8% to 27.5% for the six months ended June 30, 2000 from 30.3% for
the six months ended June 30, 1999
* net interest margin, on a tax equivalent basis, increased to 4.09% for
the six months ended June 30, 2000, from 4.06% for the six months
ended June 30, 1999
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended June 30, 2000 and
1999 was $150,000 and was $300,000 for the six months ended June 30, 2000 and
1999. For information on loan loss experience and nonperforming loans, see the
"NONPERFORMING LOANS" and "LOAN QUALITY AND ALLOWANCE FOR LOAN LOSSES" sections
later in this document.
OTHER INCOME
An important source of the Company's revenue is derived from other income.
The following table sets forth the major components of other income for the
three months ended and six months ended June 30, 2000 and 1999 (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
2000 1999 $ CHANGE 2000 1999 $ CHANGE
Trust .............. $ 448 $ 464 $(16) $ 961 $ 945 $ 16
Brokerage .......... 138 109 29 275 229 46
Service charges .... 616 573 43 1,208 1,073 135
Mortgage banking ... 107 195 (88) 169 524 (355)
Other .............. 307 346 (39) 613 684 (71)
Total other income $1,616 $1,687 $(71) $3,226 $3,455 $(229)
* Total non-interest income decreased to $3,226,000 for the six months
ended June 30, 2000, compared to $3,455,000 for the same period in
1999.
* Trust revenues increased $16,000 or 1.7% to $961,000 for the six
months ended June 30, 2000, compared to $945,000 for the same period
in 1999.
Trust assets, reported at market value, were $318 million at June 30, 2000,
$324 million at December 31, 1999 and $311 million at June 30, 1999.
* Revenues from brokerage and annuity sales increased $46,000 or 20.1%
for the six months ended June 30, 2000, compared with the same period
in 1999, as a result of increased sales of annuities.
* Fees from service charges increased $135,000 or 12.6% to $1,208,000
for the six months ended June 30, 2000, compared to $1,073,000 for the
same period in 1999. This increase was primarily due to an increase in
the number of savings and transaction accounts and an increase in the
fees charges on deposit accounts.
* Mortgage banking income decreased $355,000 or 67.8% to $169,000 for
the six months ended June 30, 2000, compared to $524,000 for the same
period in 1999. This decrease was due to a lower number of fixed rate
loans originated and sold by First Mid Bank. This decrease in volume
is largely attributed to fewer re- financings by customers as a result
of rising interest rates. Loans sold are as follows:
* $7.0 million (representing 93 loans) for the six months ended
June 30, 2000
* $32.2 million (representing 415 loans) for the six months ended
June 30, 1999
* Other income decreased $71,000 or 10.4% to $613,000 for the six months
ended June 30, 2000, compared to $684,000 for the same period in 1999.
OTHER EXPENSE
The major categories of other expense include salaries and employee
benefits, occupancy and equipment expenses and other operating expenses
associated with day-to-day operations. The following table sets forth the major
components of other expense for the six months ended June 30, 2000 and 1999 (in
thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
2000 1999 $ CHANGE 2000 1999 $ CHANGE
Salaries and benefits ..... $2,516 $2,402 $ 114 $5,026 $4,655 $ 371
Occupancy and equipment ... 905 852 53 1,783 1,621 162
FDIC premiums ............. 25 27 (2) 51 54 (3)
Amortization of intangibles 300 191 109 602 382 220
Stationery and supplies ... 124 189 (65) 272 363 (91)
Legal and professional fees 205 283 (78) 375 507 (132)
Marketing and promotion ... 249 195 54 406 314 92
Other operating expenses .. 728 649 79 1,433 1,260 173
Total other expense ..... $5,052 $4,788 $ 264 $9,948 $9,156 $ 792
* Total non-interest expense increased to $9,948,000 for the six months
ended June 30, 2000, compared to $9,156,000 for the same period in
1999.
* Salaries and employee benefits, the largest component of other
expense, increased $371,000 or 8.0% to $5,026,000 for the six months
ended June 30, 2000, compared to $4,655,000 for the same period in
1999. This increase can be explained by:
* merit increases for continuing employees
* Monticello, Taylorville and DeLand branch employees added to the
Company in May, 1999 and Decatur branch employees added in April,
2000
There were 275 FTE employees at June 30, 2000.
* Occupancy and equipment expense increased $162,000 or 10.0% to
$1,783,000 for the six months ended June 30, 2000, compared to
$1,621,000 for the same period in 1999. This increase included
depreciation expense recorded on technology equipment placed in
service as well as the depreciation expense on buildings in
Monticello, Taylorville, DeLand, Tuscola and Decatur.
* Amortization of intangible assets increased $220,000 or 57.6% to
$602,000 for the six months ended June 30, 2000, compared to $382,000
for the same period in 1999. This increase was due to the goodwill and
core deposit intangibles associated with the purchase of the
Monticello, Taylorville and DeLand branch acquisition in May, 1999.
* All other categories of operating expenses increased a net of $39,000
or 1.6% to $2,537,000 for the six months ended June 30, 2000, compared
to $2,498,000 for the same period in 1999.
INCOME TAXES
Total income tax expense amounted to $938,000 for the six months ended June
30, 2000, compared to $1,241,000 for the same period in 1999. Effective tax
rates were 24.3% and 31.9% for the periods ended June 30, 2000 and 1999. The
Company donated property with a current market value in excess of the remaining
book value to the local school district during the second quarter of 2000 which
led to a lower effective tax rate in 2000.
ANALYSIS OF BALANCE SHEETS
LOANS
The loan portfolio is the largest category of the Company's earning assets.
The following table summarizes the composition of the loan portfolio as of June
30, 2000 and December 31, 1999 (in thousands):
June 30, DECEMBER 31,
2000 1999
Real estate - mortgage $286,617 $273,293
Commercial, financial
and agricultural ... 95,461 89,176
Installment .......... 27,025 24,501
Other ................ 1,063 1,349
Total loans ........ $410,166 $388,319
At June 30, 2000, the Company had loan concentrations in agricultural
industries of $64.2 million, or 15.6%, of outstanding loans and $59.5 million,
or 15.3%, at December 31, 1999. The Company had no further industry loan
concentrations in excess of 10% of outstanding loans.
Real estate mortgage loans have averaged approximately 70% of the Company's
total loan portfolio for the past several years. This is the result of a strong
local housing market and the Company's historical focus on residential real
estate lending. The balance of real estate loans held for sale amounted to $1.9
million as of June 30, 2000.
The following table presents the balance of loans outstanding as of June
30, 2000, by maturities (dollars in thousands):
MATURITY (1)
OVER 1
ONE YEAR THROUGH OVER
OR LESS (2) 5 YEARS 5 YEARS TOTAL
Real estate - mortgage ..................... $ 61,189 $186,240 $39,188 $286,617
Commercial, financial
and agricultural ......................... 62,619 28,967 3,875 95,461
Installment ................................ 5,582 20,095 1,348 27,025
Other ...................................... 198 403 462 1,063
Total loans .............................. $129,588 $235,705 $44,873 $410,166
(1) Based on scheduled principal repayments
(2) Includes demand loans, past due loans and overdrafts.
As of June 30, 2000, loans with maturities over one year consisted of
$247,474,000 in fixed rate loans and $33,104,000 in variable rate loans. The
loan maturities noted above are based on the contractual provisions of the
individual loans. Rollovers and borrower requests are handled on a case-by-case
basis.
NONPERFORMING LOANS
Nonperforming loans include: (a) loans accounted for on a nonaccrual basis;
(b) accruing loans contractually past due ninety days or more as to interest or
principal payments; and loans not included in (a) and (b) above which are
defined as "renegotiated loans".
The following table presents information concerning the aggregate amount of
nonperforming loans at June 30, 2000 and December 31, 1999 (in thousands):
June 30, December 31,
2000 1999
Nonaccrual loans ........... $1,166 $1,430
Loans past due ninety days
or more and still accruing 504 366
Renegotiated loans which are
performing in accordance
with revised terms ....... 244 81
Total Nonperforming Loans .. $1,914 $1,877
The Company's policy generally is to discontinue the accrual of interest
income on any loan for which principal or interest is ninety days past due and
when, in the opinion of management, there is reasonable doubt as to the timely
collection of interest or principal. Nonaccrual loans are returned to accrual
status when, in the opinion of management, the financial position of the
borrower indicates there is no longer any reasonable doubt as to the timely
collection of interest or principal.
LOAN QUALITY AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents management's best estimate of the
reserve necessary to adequately cover losses inherent in the loan portfolio. The
provision for loan losses is the charge against current earnings that is
determined by management as the amount needed to maintain an adequate allowance
for loan losses. In determining the adequacy of the allowance for loan losses,
and therefore the provision to be charged to current earnings, management relies
predominantly on a disciplined credit review and approval process which extends
to the full range of the Company's credit exposure. The review process is
directed by overall lending policy and is intended to identify, at the earliest
possible stage, borrowers who might be facing financial difficulty. Once
identified, the magnitude of exposure to individual borrowers is quantified in
the form of specific allocations of the allowance for loan losses. Collateral
values are considered by management in the determination of such specific
allocations. Additional factors considered by management in evaluating the
overall adequacy of the allowance include historical net loan losses, the level
and composition of nonaccrual, past due and renegotiated loans and the current
economic conditions in the region where the Company operates.
Management recognizes that there are risk factors which are inherent in the
Company's loan portfolio. All financial institutions face risk factors in their
loan portfolios because risk exposure is a function of the business. The
Company's operations (and therefore its loans) are concentrated in east central
Illinois, an area where agriculture is the dominant industry. Accordingly,
lending and other business relationships with agriculture-based businesses are
critical to the Company's success. At June 30, 2000, the Company's loan
portfolio included $64.2 million of loans to borrowers whose businesses are
directly related to agriculture. The balance remained stable from $59.5 million
at December 31, 1999. While the Company adheres to sound underwriting practices
including collateralization of loans, an extended period of low commodity prices
and/or significantly reduced yields on crops could nevertheless result in an
increase in the level of problem agriculture loans.
Loan loss experience for the six month period ended June 30, 2000 and 1999,
are summarized as follows (dollars in thousands):
June 30,
2000 1999
Average loans outstanding,
net of unearned income ............ $396,614 $341,868
Allowance-beginning of period ....... $ 2,939 $ 2,715
Balance of acquired branches ........ -- 150
Charge-offs:
Real estate-mortgage ................ 18 --
Commercial, financial & agricultural 55 170
Installment ......................... 54 40
Total charge-offs ................. 127 210
Recoveries:
Real estate-mortgage ................ 1 1
Commercial, financial & agricultural 10 7
Installment ......................... 10 11
Total recoveries .................. 21 18
Net charge-offs ..................... 106 192
Provision for loan losses ........... 300 300
Allowance-end of period ............. $ 3,133 $ 2,973
Ratio of net charge-offs to
average loans ..................... .03% .06%
Ratio of allowance for loan losses to
loans outstanding (less unearned
interest at end of period) ........ .76% .83%
Ratio of allowance for loan losses
to nonperforming loans ............ 163.7% 109.6%
The Company minimizes credit risk by adhering to sound underwriting and
credit review policies. These policies are reviewed at least annually, and
changes are approved by the board of directors. Senior management is actively
involved in business development efforts and the maintenance and monitoring of
credit underwriting and approval. The loan review system and controls are
designed to identify, monitor and address asset quality problems in an accurate
and timely manner. On a monthly basis, the board of directors reviews the status
of problem loans. In addition to internal policies and controls, regulatory
authorities periodically review asset quality and the overall adequacy of the
allowance for loan losses.
During the first six months of 2000, the Company had net charge-offs of
$106,000, compared to $192,000 for the same period in 1999. At June 30, 2000,
the allowance for loan losses amounted to $3,133,000, or .76% of total loans,
and 163.7% of nonperforming loans. At June 30, 1999, the allowance was
$2,973,000, or .83% of total loans, and 109.6% of nonperforming loans.
SECURITIES
The Company's overall investment goal is to maximize earnings while
maintaining liquidity in securities having minimal credit risk. The types and
maturities of securities purchased are primarily based on the Company's current
and projected liquidity and interest rate sensitivity positions. The following
table sets forth the amortized cost of the securities for June 30, 2000 and
December 31, 1999 (in thousands):
JUNE 30, DECEMBER 31,
2000 1999
% OF % OF
AMOUN TOTAL AMOUNT TOTAL
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies .... $ 90,983 59% $ 92,180 58%
Obligations of states and
political subdivisions ....... 30,713 20% 30,281 19%
Mortgage-backed securities .... 30,087 19% 32,578 21%
Other securities .............. 3,096 2% 2,579 2%
Total securities .......... $154,879 100% $157,618 100%
At June 30, 2000, the Company's investment portfolio showed a slight
increase in obligations of states and political subdivisions. While the volume
of mortgage-backed securities decreased, all other types of securities remained
constant.
The amortized cost, gross unrealized gains and losses and estimated fair
values for available-for- sale and held-to-maturity securities by major security
type at June 30, 2000 and December 31, 1999 were as follows (in thousands):
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
June 30, 2000 COST GAINS LOSSES VALUE
Available-for-sale:
U.S. Treasury securities and obligations
of U.S. Government corporations & agencies $ 90,983 $ -- $ (3,972) $ 87,011
Obligations of states and political
subdivisions ............................. 27,581 71 (762) 26,890
Mortgage-backed securities ................ 30,087 41 (657) 29,471
Federal Home Loan Bank stock .............. 2,430 -- -- 2,430
Other securities .......................... 666 -- -- 666
Total available-for-sale ................. $151,747 $ 112 $ (5,391) $146,468
Held-to-maturity:
Obligations of states and political
subdivisions ............................. $ 3,132 $ 5 $ (47) $ 3,090
DECEMBER 31, 1999
Available-for-sale:
U.S. Treasury securities and obligations
of U.S. Government corporations & agencies $ 92,180 $ -- $ (3,748) $ 88,432
Obligations of states and political
subdivisions ............................. 28,149 49 (1,108) 27,090
Mortgage-backed securities ................ 32,578 58 (580) 32,056
Federal Home Loan Bank stock .............. 1,913 -- -- 1,913
Other securities .......................... 666 -- -- 666
Total available-for-sale ................ $155,486 $ 107 $ (5,436) $150,157
Held-to-maturity:
Obligations of states and political
subdivisions ............................. $ 2,132 $ 8 $ (63) $ 2,077
The following table indicates the expected maturities of investment
securities classified as available-for- sale and held-to-maturity, presented at
amortized cost, at June 30, 2000 (dollars in thousands) and the weighted average
yield for each range of maturities. Mortgage-backed securities are aged
according to their weighted average life. All other securities are shown at
their contractual maturity.
ONE AFTER 1 AFTER 5 AFTER
YEAR THROUGH THROUGH TEN
OR LESS 5 YEARS 10 YEARS YEARS TOTAL
Available-for-sale:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies .... $ 3,000 $ 71,502 $ 12,261 $ 4,220 $ 90,983
Obligations of state and
political subdivisions ....... 1,717 2,848 12,285 10,731 27,581
Mortgage-backed securities ..... 251 1,532 1,367 26,937 30,087
Other securities ............... -- -- -- 3,096 3,096
Total Investments .............. $ 4,968 $ 75,882 $ 25,913 $ 44,984 $151,747
Weighted average yield ......... 5.67% 5.77% 5.53% 6.34% 5.91%
Full tax-equivalent yield ...... 6.53% 5.84% 6.47% 6.84% 6.28%
Held-to-maturity:
Obligations of state and
political subdivisions ....... $ 405 $ 1,251 $ 810 $ 666 $ 3,132
Weighted average yield ......... 5.08% 5.05% 5.44% 5.41% 5.23%
Full tax-equivalent yield ...... 7.34% 7.29% 7.89% 7.90% 7.58%
The weighted average yields are calculated on the basis of the cost and
effective yields weighted for the scheduled maturity of each security. Full
tax-equivalent yields have been calculated using a 34% tax rate.
The maturities of, and yields on, mortgage-backed securities have been
calculated using actual repayment history. However, where securities have call
features, and have a market value in excess of par value, the call date has been
used to determine the expected maturity.
With the exception of obligations of the U.S. Treasury and other U.S.
Government agencies and corporations, there were no investment securities of any
single issuer the book value of which exceeded 10% of stockholders' equity at
June 30, 2000.
Investment securities carried at approximately $123,040,000 and
$124,368,000 at June 30, 2000 and December 31, 1999, respectively, were pledged
to secure public deposits and repurchase agreements and for other purposes as
permitted or required by law.
DEPOSITS
Funding the Company's earning assets is substantially provided by a
combination of consumer, commercial and public fund deposits. The Company
continues to focus its strategies and emphasis on retail core deposits, the
major component of funding sources. The following table sets forth the average
deposits and weighted average rates for the six months ended June 30, 2000 and
for the year ended December 31, 1999 (dollars in thousands):
JUNE 30, DECEMBER 31,
2000 1999
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
Demand deposits:
Non-interest bearing $ 61,807 - $ 60,557 -
Interest bearing 160,459 2.95% 147,753 2.58%
Savings 40,490 2.33% 40,875 2.31%
Time deposits 222,528 5.19% 225,451 5.09%
Total average deposits 485,284 3.55% $474,636 3.42%
The following table sets forth the maturity of time deposits of $100,000 or
more at June 30, 2000 and December 31, 1999 (in thousands):
JUNE 30, December 31,
2000 1999
3 months or less ....... $16,783 $16,915
Over 3 through 6 months 11,581 11,708
Over 6 through 12 months 10,181 11,444
Over 12 months ......... 6,247 3,854
Total ................ $44,792 $43,921
OTHER BORROWINGS
Other borrowings consist of securities sold under agreements to repurchase,
Federal Home Loan Bank ("FHLB") advances, and federal funds purchased.
Information relating to other borrowings as of June 30, 2000 and December 31,
1999 is presented below (in thousands):
June 30, December 31,
2000 1999
Securities sold under agreements to repurchase $26,121 $32,308
Federal Home Loan Bank advances:
Overnight .................................. 28,049 3,000
Fixed term - due after one year ............ 10,300 18,500
Federal funds purchased ...................... -- 1,175
Total ...................................... $64,470 $54,983
Average interest rate at end of period ..... 6.27% 4.86%
Maximum Outstanding at Any Month-end
Securities sold under agreements to repurchase $26,121 $32,308
Federal Home Loan Bank advances:
Overnight .................................. 33,575 18,000
Fixed term - due after one year ............ 13,000 20,500
Federal funds purchased ...................... 1,000 1,175
Total ...................................... $73,696 $71,983
Averages for the Period Ended
Securities sold under agreements to repurchase $23,295 $22,063
Federal Home Loan Bank advances:
Overnight .................................. 21,147 1,486
Fixed term - due after one year ............ 10,819 17,116
Federal funds purchased ...................... 1,547 345
Total ...................................... $56,808 $41,010
Average interest rate during the period .... 5.78% 4.65%
Securities sold under agreements to repurchase are short-term obligations
of First Mid Bank. First Mid Bank collateralizes these obligations with certain
government securities which are direct obligations of the United States or one
of its agencies. First Mid Bank offers these retail repurchase agreements as a
cash management service to its corporate customers.
Federal Home Loan Bank advances represent borrowings by First Mid Bank to
economically fund loan demand. This loan demand was previously funded primarily
through deposits by the State of Illinois. The fixed term advances consists
primarily of the following:
* $5 million advance with a 5- year maturity, no call option by the
Federal Home Loan Bank for one year, first call 3/30/01, and an
interest rate of 6.16%
* $3 million advance with a 5- year maturity, a quarterly call
option by the Federal Home Loan Bank and an interest rate of
5.85%
* $2.3 million advance with a 5- year maturity, no call option by
the Federal Home Loan Bank for nine months and quarterly
thereafter, first call 1/7/01, and an interest rate of 6.10%
INTEREST RATE SENSITIVITY
The Company seeks to maximize its net interest margin within an acceptable
level of interest rate risk. Interest rate risk can be defined as the amount of
forecasted net interest income that may be gained or lost due to favorable or
unfavorable movements in interest rates. Interest rate risk, or sensitivity,
arises when the maturity or repricing characteristics of assets differ
significantly from the maturity or repricing characteristics of liabilities.
The Company monitors its interest rate sensitivity position to maintain a
balance between rate sensitive assets and rate sensitive liabilities. This
balance serves to limit the adverse effects of changes in interest rates. The
Company's asset/liability management committee oversees the interest rate
sensitivity position and directs the overall allocation of funds.
In the banking industry, a traditional measurement of interest rate
sensitivity is known as "GAP" analysis, which measures the cumulative
differences between the amounts of assets and liabilities maturing or repricing
at various intervals. The following table sets forth the Company's interest rate
repricing gaps for selected maturity periods at June 30, 2000 (in thousands):
NUMBER OF MONTHS UNTIL NEXT REPRICING OPPORTUNITY
INTEREST EARNING ASSETS: ............. 0-1 1-3 3-6 6-12 12+
Federal funds sold ................... $ 95 $ -- $ -- $ -- $ --
Taxable investment securities ........ 17,386 6,956 4,747 11,425 79,065
Nontaxable investment securities ..... -- 335 2,463 432 26,792
Loans ................................ 52,940 19,348 37,827 51,417 248,634
Total .............................. $ 70,421 $ 26,639 $ 45,037 $ 63,274 $ 354,491
INTEREST BEARING LIABILITIES:
Savings and N.O.W. accounts .......... 146,851 -- -- -- --
Money market accounts ................ 50,636 -- -- -- --
Other time deposits .................. 25,467 38,724 56,135 52,139 55,791
Other borrowings ..................... 54,125 -- -- -- 10,345
Long-term debt ....................... 4,325 -- -- -- --
Total .............................. $ 281,404 $ 38,724 $ 56,135 $ 52,139 $ 66,136
Periodic GAP ....................... $(210,983) $ (12,085) $ (11,098) $ 11,135 $ 288,355
Cumulative GAP ..................... $(210,983) $(223,068) $(234,166) $(223,031) $ 65,324
GAP as a % of interest earning assets:
Periodic ........................... (37.7%) (2.2%) (2.0%) 2.0% 51.5%
Cumulative ......................... (37.7%) (39.8%) (41.8%) (39.8%) 11.7%
At June 30, 2000, the Company was liability sensitive on a cumulative basis
through the twelve-month time horizon. Accordingly, future increases in interest
rates, if any, could have an unfavorable effect on the net interest margin. The
Company's ability to lag the market in repricing deposits in a rising interest
rate environment eases the implied liability sensitivity of the Company.
Interest rate sensitivity using a static GAP analysis basis is only one of
several measurements of the impact of interest rate changes on net interest
income used by the Company. Its actual usefulness in assessing the effect of
changes in interest rates varies with the constant changes which occur in the
composition of the Company's earning assets and interest-bearing liabilities.
For this reason, the Company uses financial models to project interest income
under various rate scenarios and assumptions relative to the prepayments,
reinvestment and roll overs of assets and liabilities, of which First Mid Bank
represents substantially all of the Company's rate sensitive assets and
liabilities.
CAPITAL RESOURCES
At June 30, 2000, the Company's stockholders' equity increased $1,644,000
or 3.2% to $53,162,000 from $51,518,000 as of December 31, 1999. During the
first six months of 2000, net income contributed $2,925,000 to equity before the
payment of dividends to common stockholders. The change in net unrealized
gain/loss on available-for-sale investment securities increased stockholders'
equity by $31,000, net of tax.
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Bank holding companies follow
minimum regulatory requirements established by the Federal Reserve Board, First
Mid Bank follows similar minimum regulatory requirements established for
national banks by the Office of the Comptroller of the Currency. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary action by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements.
Quantitative measures established by each regulatory agency to ensure
capital adequacy require the reporting institutions to maintain a minimum total
risk-based capital ratio of 8% and a minimum leverage ratio of 3% for the most
highly-rated banks that do not expect significant growth. All other institutions
are required to maintain a minimum leverage ratio of 4%. Management believes
that as of June 30, 2000 and December 31, 1999 all capital adequacy requirements
have been met by the Company and First Mid Bank.
As of June 30, 2000, the most recent notification from the primary
regulators categorized the Company and First Mid Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as well
capitalized, minimum total risk-based, Tier 1 risk- based and Tier 1 leverage
ratios must be maintained as set forth in the table. There are no conditions or
events since that notification that management believes have changed these
categories.
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
JUNE 30, 2000
Total Capital
(to risk-weighted assets)
Company ................. $46,790 11.86% $31,549 > 8.00% $39,437 > 10.00%
First Mid Bank .......... 47,963 12.28% 31,252 > 8.00% 39,064 > 10.00%
Tier 1 Capital
(to risk-weighted assets)
Company ................. 43,657 11.07% 15,775 > 4.00% 23,662 > 6.00
First Mid Bank .......... 44,830 11.48% 15,626 > 4.00% 23,439 > 6.00
Tier 1 Capital
(to average assets)
Company ................. 43,657 7.29% 23,941 > 4.00% 29,926 > 5.00%
First Mid Bank .......... 44,830 7.52% 23,842 > 4.00% 29,803 > 5.00%
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
DECEMBER 31, 1999
Total Capital
(to risk-weighted assets)
Company ................. $44,381 11.98% $29,648 > 8.00% $37,060 > 10.00%
First Mid Bank .......... 45,409 12.40% 29,305 > 8.00% 36,631 > 10.00%
Tier 1 Capital
(to risk-weighted assets)
Company ................. 41,442 11.18% 14,824 > 4.00% 22,236 > 6.00%
First Mid Bank .......... 42,470 11.59% 14,652 > 4.00% 21,979 > 6.00%
Tier 1 Capital
(to average assets)
Company ................. 41,442 6.96 24,347 > 4.00% 30,434 > 5.00%
First Mid Bank .......... 42,470 7.19 23,630 > 4.00% 29,538 > 5.00%
Banks and bank holding companies are generally expected to operate at or
above the minimum capital requirements. These ratios are in excess of regulatory
minimums and will allow the Company to operate without capital adequacy
concerns.
STOCK PLANS
The Company has four plans through which Company stock may be purchased by
participants, the Deferred Compensation Plan, the First Retirement and Savings
Plan, the Dividend Reinvestment Plan, and the Stock Incentive Plan. For more
detailed information on these plans, refer to the Company's 1999 Form 10-K.
* The DEFERRED COMPENSATION PLAN was effective as of September, 1984. Its
purpose is to allow directors, advisory directors, and key officers to
defer a portion of the fees and cash compensation paid by the Company as a
means of maximizing the effectiveness and flexibility of compensation
arrangements.
* The FIRST RETIREMENT AND SAVINGS PLAN was effective beginning in 1985.
Employees are eligible to participate in this plan after nine months of
service to the Company.
* The DIVIDEND REINVESTMENT PLAN was effective as of October, 1994. The
purpose of this plan is to provide participating stockholders with a simple
and convenient method of investing cash common stock dividends paid by the
Company into newly-issued common shares of the Company. All holders of
record of the Company's common stock are eligible to participate. This plan
is administered by Harris Trust and Savings Bank and offers a way to
increase one's investment in the Company.
* The STOCK INCENTIVE PLAN was established by the Company in December, 1997,
and is intended to provide a means whereby directors and certain officers
can acquire shares of the Company's common stock. A maximum of 100,000
shares have been authorized under this plan. Options to acquire shares will
be awarded at an exercise price equal to the fair market value of the
shares on the date of grant. Options to acquire shares have a 10- year
term. Options granted to employees vest over a four year period and those
options granted to directors vest at the time they are issued.
The Company announced a Stock Repurchase Program in August, 1998 to allow
the Company to repurchase up to 3% of its common stock. In March, 2000, the
Board of Directors of the Company authorized the repurchase of an additional 5%.
The shares will be repurchased at the most recent market price of the stock. The
Company repurchased 43,845 shares (1.9%) at a total price of $1,411,000 during
the six months ended June 30, 2000 and 9,696 shares (.4%) at a total price of
$337,000 for the year ended December 31, 1999. A total of 67,080 shares have
been repurchased from the inception of this program to June 30, 2000, and are
held in treasury.
LIQUIDITY
Liquidity represents the ability of the Company and its subsidiaries to
meet the requirements of customers for loans and deposit withdrawals. Liquidity
management focuses on the ability to obtain funds economically for these
purposes and to maintain assets which may be converted into cash at minimal
costs. Other sources for cash include deposits of the State of Illinois and
Federal Home Loan Bank advances. At June 30, 2000, the excess collateral at the
Federal Home Loan Bank will support approximately $61 million of additional
advances.
Management monitors its expected liquidity requirements carefully, focusing
primarily on cash flows from:
* lending activities, including loan commitments, letters of credit and
mortgage prepayment assumptions
* deposit activities, including seasonal demand of private and public
funds
* investing activities, including prepayments of mortgage-backed
securities and call provisions on U.S. Government Treasuries and
Agencies
* operating activities, including scheduled debt repayments and
dividends to shareholders
EFFECTS OF INFLATION
Unlike industrial companies, virtually all of the assets and liabilities of
the Company are monetary in nature. As a result, interest rates have a more
significant impact on the Company's performance than the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or experience the same magnitude of changes as goods and services,
since such prices are effected by inflation. In the current economic
environment, liquidity and interest rate adjustments are features of the
Company's assets and liabilities which are important to the maintenance of
acceptable performance levels. The Company attempts to maintain a balance
between monetary assets and monetary liabilities, over time, to offset these
potential effects.
FUTURE ACCOUNTING CHANGES
Statement of Financial Accounting Standards No. 133, "ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES," ("SFAS 133") was issued by the
FASB in September 1998. SFAS 133 standardizes the accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts. Under the standard, entities are required to carry all derivative
instruments in the statement of financial position at fair value. The accounting
for changes in the fair value (i.e., gains or losses) of a derivative instrument
depends on whether it has been designated and qualifies as part of a hedging
relationship and, if so, on the reason for holding it. If certain conditions are
met, entities may elect to designate a derivative instrument as a hedge of
exposures to changes in fair values, cash flows, or foreign currencies. If the
hedged exposure is a fair value exposure, the gain or loss on the derivative
instrument is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item attributable to the risk being
hedged. If the hedged exposure is a cash flow exposure, the effective portion of
the gain or loss on the derivative instrument is reported initially as a
component of other comprehensive income (outside earnings) and subsequently
reclassified into earnings when the forecasted transaction affects earnings. Any
amounts excluded from the assessment of hedge effectiveness as well as the
ineffective portion of the gain or loss is reported in earnings immediately.
Accounting for foreign currency hedges is similar to the accounting for fair
value and cash flow hedges. If the derivative instrument is not designated as a
hedge, the gain or loss is recognized in earnings in the period of change.
During September, 1999, the FASB issued the Statement of Financial Accounting
Standards No. 137, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
- -- DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133 -- AN AMENDMENT OF
FASB STATEMENT NO. 133," ("SFAS 137") that delays SFAS 133 until fiscal years
beginning after June 15, 2000. Adoption of SFAS 133 is not expected to have a
material impact on the Company's financial statements.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE
INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES, AN AMENDMENT OF FASB STATEMENT NO.
133. This statement focuses mainly on guidance related to specific issues that
would ease implementation difficulties for a large number of entities. The Board
amended SFAS 133 by expanding the normal purchases and normal sales exception,
permitting an entity to hedge to a designated benchmark interest rate defined as
either the Treasury Rate or the London Interbank Offered Rate swap rate,
permitting entities to hedge recognized foreign-currency-denominated assets and
liabilities for which a foreign currency transaction gain or loss is recognized
in earnings and permitting certain internal derivatives to qualify for hedge
accounting in the consolidated financial statements even though internal
derivatives are offset on a net or aggregate basis, rather than individually, by
third party derivative contracts. SFAS 133 continues to be effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS 138 is
to be adopted concurrently with SFAS 133. Adoption of SFAS 138 is not expected
to have a material impact on the Company's financial position, results of
operation or liquidity.
PENDING LITIGATION
Heartland Savings Bank, a subsidiary of the Company that merged with First
Mid Bank during 1997, filed a complaint on December 5, 1995, against the U.S.
Government which is now pending in the U.S. Court of Federal claims in
Washington D.C. Refer to "PART II, ITEM 1, LEGAL PROCEEDINGS".
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material changes in the market risks faced by the Company
since December 31, 1999. For information regarding the Company's market risk,
refer to the Company's Annual Report on Form 10- K for the year ended December
31, 1999.
PART II
ITEM 1. LEGAL PROCEEDINGS
Since First Mid Bank acts as depositories of funds, it is named from time
to time as a defendant in law suits (such as garnishment proceedings) involving
claims to the ownership of funds in particular accounts. Management believes
that all such litigation as well as other pending legal proceedings constitute
ordinary routine litigation incidental to the business of First Mid Bank and
that such litigation will not materially adversely affect the Company's
consolidated financial condition.
In addition to the normal proceedings referred to above, Heartland Savings
Bank ("Heartland"), a subsidiary of the Company that merged with First Mid Bank
during 1997, filed a complaint on December 5, 1995, against the U.S. Government
which is now pending in the U.S. Court of Federal claims in Washington D.C. This
complaint relates to Heartland's interest as successor to Mattoon Federal
Savings and Loan Association which incurred a significant amount of supervisory
goodwill when it acquired Urbana Federal Savings and Loan in 1982. The complaint
alleges that the Government breached its contractual obligations when, in 1989,
it issued new rules which eliminated supervisory goodwill from inclusion in
regulatory capital. On August 6, 1998, First Mid Bank filed a motion with the
U.S. Court of Federal claims to grant summary judgement on liability for breach
of contract in this matter. On August 13, 1998, the U.S. Government filed a
motion to stay such proceedings. At this time, it is too early to tell if First
Mid Bank will prevail in its motion and, if so, what damages, if any, may be
recovered.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on May 17, 2000. At the
meeting, Richard Anthony Lumpkin and William S. Rowland were elected to serve as
Class II directors with terms expiring in 2003. Continuing Class I directors
(term expiring in 2002) are Kenneth R. Diepholz, Gary W. Melvin and Steven L.
Grissom and continuing Class III directors (term expiring in 2001) are Charles
A. Adams, Daniel E. Marvin, Jr., and Ray Anthony Sparks.
There were 2,272,043 issued and outstanding shares of Common Stock at the
time of the Annual Meeting. The voting at the meeting, on the items listed
below, was as follows:
Election of Directors For Withheld
Richard Anthony Lumpkin 2,046,199 3,380
William S. Rowland 2,045,699 3,800
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits required by Item 601 of Regulation S-K and filed herewith are
listed in the Exhibit Index which follows the Signature Page and immediately
precedes the exhibits filed.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the quarter
ended June 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FIRST MID-ILLINOIS BANCSHARES, INC.
(Company)
/s/ William S. Rowland
-------------------------------------*
William S. Rowland
President and Chief Executive Officer
/s/ Michael L. Taylor
-------------------------------------*
Michael L. Taylor
Chief Financial Officer
Dated: August 11, 2000
*---------------------*
EXHIBIT INDEX TO FORM 10-Q
EXHIBIT
NUMBER DESCRIPTION AND FILING OR INCORPORATION REFERENCE
11.1 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(Filed herewith)
27.1 FINANCIAL DATA SCHEDULE
(Filed herewith)