UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NUMBER: 0-13368
FIRST MID-ILLINOIS BANCSHARES, INC.
(Exact name of Company 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
(Company's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $4.00 PER SHARE,
AND RELATED COMMON STOCK PURCHASE RIGHTS
(Title of class)
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 periods 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 27, 2001, 2,251,295 common shares, $4.00 par value, were
outstanding, and the aggregate market value of common shares (based on the last
sale price of the Company's common shares on March 8, 2001) held by non-
affiliates was approximately $68,665,000.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT INTO FORM 10-K PART:
Portions of the Proxy Statement for 2001 Annual
Meeting of Shareholders to be held on May 23, 2001 III
FIRST MID-ILLINOIS BANCSHARES, INC.
FORM 10-K TABLE OF CONTENTS
PAGE
PART I
Item 1 Business 3
Item 2 Properties 13
Item 3 Legal Proceedings 16
Item 4 Submission of Matters to a Vote of Security Holders 16
PART II
Item 5 Market for Company's Common Shares and Related
Shareholder Matter 17
Item 6 Selected Financial Data 18
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
Item 7A Quantitative and Qualitative Disclosures About
Market Risk 38
Item 8 Financial Statements and Supplementary Data 41
Item 9 Changes In and Disagreements with Accountants on
Accounting and Financial Disclosures 68
PART III
Item 10 Directors and Executive Officers of the Company 68
Item 11 Executive Compensation 68
Item 12 Security Ownership of Certain Beneficial Owners and
Management 68
Item 13 Certain Relationships and Related Transactions 68
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K 69
SIGNATURES 70
Exhibit Index 71
PART I
ITEM 1. BUSINESS
COMPANY AND SUBSIDIARIES
First Mid-Illinois Bancshares, Inc. (the "Company") is a bank holding
company engaged in the business of banking through its wholly-owned subsidiary,
First Mid-Illinois Bank & Trust, N.A. ("First Mid Bank"). The Company provides
data processing services to affiliates through another wholly-owned subsidiary,
Mid-Illinois Data Services, Inc. ("MIDS"). First Mid Bank provides insurance
services to customers through its wholly-owned subsidiary First Mid-Illinois
Insurance Services, Inc. ("First Mid Insurance").
The Company, a Delaware corporation, was incorporated on September 8, 1981,
pursuant to the approval of the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board") and became the holding company owning all of the
outstanding stock of First National Bank, Mattoon ("First National") on June 1,
1982. The Company acquired all of the outstanding stock of a number of community
banks on the following dates:
* Mattoon Bank, Mattoon ("Mattoon Bank") on April 2, 1984
* State Bank of Sullivan ("Sullivan Bank") on April 1, 1985
* Cumberland County National Bank in Neoga ("Cumberland County") on
December 31, 1985
* First National Bank and Trust Company of Douglas County ("Douglas
County") on December 31, 1986
* Charleston Community Bank ("Charleston Bank") on December 30, 1987.
In April 1989, a purchase and assumption agreement was executed between
First National and Mattoon Bank whereby First National purchased substantially
all of the assets and assumed all of the liabilities of Mattoon Bank. On May 31,
1992, the Company merged Sullivan Bank, Cumberland County, Douglas County and
Charleston Bank into First National. First National changed its name at that
time to First Mid-Illinois Bank & Trust, N.A.
On July 1, 1992, the Company acquired and re-capitalized Heartland Federal
Savings and Loan Association ("Heartland"), a $125 million thrift headquartered
in Mattoon with offices in Charleston, Sullivan and Urbana, Illinois. Under the
terms of the acquisition, Heartland converted from the mutual form of
organization into a federally-chartered, stock savings association and became a
100%-owned subsidiary of the Company. In connection with the Heartland
acquisition, $3.1 million of Series A perpetual, cumulative, non-voting,
convertible, preferred stock was issued to directors and certain senior officers
of the Company in a private placement. Refer to note #1 of Notes to the
Consolidated Financial Statements.
On October 4, 1994, First Mid Bank acquired all of the outstanding stock of
Downstate Bancshares, Inc. ("DBI") which owned 100% of the stock of Downstate
National Bank ("DNB"). DNB operated branch locations in Altamont and Effingham,
Illinois. Immediately following the acquisition, DBI was dissolved and DNB was
merged with and into First Mid Bank with First Mid Bank being the surviving
entity.
In December 1994, Heartland (formerly known as Heartland Federal Savings
and Loan Association) converted from a federally-chartered stock savings
association to a state-chartered savings bank and changed its name to Heartland
Savings Bank.
On March 7, 1997, First Mid Bank acquired the Charleston, Illinois branch
location and the customer base of First of America Bank. This cash acquisition
added approximately $28 million to total deposits, $.5 million to loans, $1.3
million to premises and equipment and $3.8 million to intangible assets.
In November 1997, Heartland merged with and into First Mid Bank with First
Mid Bank being the surviving entity.
On May 7, 1999, the Company acquired the Monticello, Taylorville and DeLand
branch offices and deposit base of Bank One Illinois, N.A. This cash acquisition
added approximately $64 million to total deposits, $10 million to loans, $1.7
million to premises and equipment and $6.5 million to intangible assets. This
acquisition was accounted for using the purchase method of accounting whereby
the acquired assets and deposits of the branches were recorded at their fair
values as of the acquisition date.
On April 17, 2000, the Company opened a DE NOVO branch in Decatur,
Illinois.
On September 5, 2000, the Company opened a banking center in the Student
Union of Eastern Illinois University in Charleston, Illinois.
DESCRIPTION OF BUSINESS
First Mid Bank conducts a general banking business encompassing most of the
services, both consumer and commercial, which banks may lawfully provide,
including the following principal services: the acceptance of deposits to
demand, savings and time accounts and the servicing of such accounts;
commercial, industrial, agricultural, consumer and real estate lending,
including installment, credit card, personal lines of credit and overdraft
protection; safe deposit box operations; and an extensive variety of additional
services tailored to the needs of customers, such as traveler's checks and
cashiers' checks, foreign currency, and other special services. First Mid Bank
also provides services to its customers through its trust department and
investment center.
Loans, both commercial and consumer, are provided on either a secured or
unsecured basis to corporations, partnerships and individuals. Commercial
lending covers such categories as business, industry, capital, construction,
agriculture, inventory and real estate, with the latter including residential
properties. First Mid Bank's installment loan department makes direct loans to
consumers and some commercial customers, and purchases retail obligations from
retailers, primarily without recourse.
First Mid Bank conducts its business in the middle of some of the richest
farmland in the world. Accordingly, First Mid Bank provides a wide range of
financial services to farmers and agribusiness within their respective markets.
The farm management department, headquartered in Mattoon, Illinois, has
approximately 33,000 acres under management and is the largest management
operation in the area, ranking in the top 100 firms nationwide. First Mid Bank
is the largest supplier of farm credit in the Company's market area with $67.9
million in agriculture-related loans at December 31, 2000. The farm credit
products offered by First Mid Bank include not only real estate loans, but
machinery and equipment loans, production loans, inventory financing and lines
of credit.
Before intercompany eliminations, First Mid Bank had total assets of
$640,054,000 and stockholder's equity of $58,842,000 at December 31, 2000.
EMPLOYEES
The Company, MIDS and First Mid Bank, collectively, employed 269 people on
a full-time equivalent basis as of December 31, 2000. The Company places a high
priority on staff development which involves extensive training, including
customer service training. New employees are selected on the basis of both
technical skills and customer service capabilities. None of the employees are
covered by a collective bargaining agreement with the Company. The Company
offers a variety of employee benefits and management considers its employee
relations to be excellent.
COMPETITION
The Company actively competes in all areas in which First Mid Bank
presently does business. First Mid Bank competes for commercial and individual
deposits, loans, and trust business with many east central Illinois banks,
savings and loan associations, and credit unions. The principal methods of
competition in the banking and financial services industry are quality of
services to customers, ease of access to facilities, and pricing of services,
including interest rates paid on deposits, interest rates charged on loans, and
fees charged for fiduciary and other banking services.
First Mid Bank operates facilities in the Illinois counties of Champaign,
Christian, Coles, Cumberland, Douglas, Effingham, Macon, Moultrie, and Piatt.
Each facility primarily serves the community in which it is located. First Mid
Bank serves thirteen different communities with 20 separate locations in the
towns of Altamont, Arcola, Charleston, Decatur, DeLand, Effingham, Mattoon,
Monticello, Neoga, Sullivan, Taylorville, Tuscola, and Urbana, Illinois. Within
the area of service there are numerous competing financial institutions and
financial services companies.
SUPERVISION AND REGULATION
GENERAL
Financial institutions and their holding companies are extensively
regulated under federal and state law. As a result, the growth and earnings
performance of the Company can be affected not only by management decisions and
general economic conditions, but also by the requirements of applicable state
and federal statutes and regulations and the policies of various governmental
regulatory authorities including, but not limited to, the OCC, the Board of
Governors of the Federal Reserve System, the FDIC, the Internal Revenue Service
and state taxing authorities. Any change in applicable laws, regulations or
regulatory policies may have material effect on the business, operations and
prospects of the Company and First Mid Bank. The Company is unable to predict
the nature or extent of the effects that fiscal or monetary policies, economic
controls or new federal or state legislation may have on its business and
earnings in the future.
Federal and state laws and regulations generally applicable to financial
institutions, such as the Company and its subsidiaries, regulate, among other
things, the scope of business, investments, reserves against deposits, capital
levels relative to operations, the nature and amount of collateral for loans,
the establishment of branches, mergers, consolidations and dividends. The system
of supervision and regulation applicable to the Company and its subsidiaries
establishes a comprehensive framework for their respective operations and is
intended primarily for the protection of the FDIC's deposit insurance funds and
the depositors, rather than the shareholders, of financial institutions.
The following references to material statutes and regulations affecting the
Company and its subsidiaries are brief summaries thereof and do not purport to
be complete, and are qualified in their entirety by reference to such statutes
and regulations. Any change in applicable law or regulations may have a material
effect on the business of the Company and its subsidiaries.
FINANCIAL MODERNIZATION LEGISLATION
On November 12, 1999, the President signed into law the Gramm-Leach- Bliley
Act (the "GLB Act"). The GLB Act significantly changes financial services
regulation by expanding permissible non-banking activities of bank holding
companies and removing barriers to affiliations among banks, insurance
companies, securities firms and other financial services entities. These
activities and affiliations can be structured through a holding company
structure or, subject to certain limitations, through a financial subsidiary of
a bank. The GLB Act establishes a system of federal and state regulation based
on functional regulation, meaning that primary regulatory oversight for a
particular activity will generally reside with the federal or state regulator
having the greatest expertise in the area. Banking is to be supervised by
banking regulators, insurance by state insurance regulators and securities
activities by the SEC and state securities regulators. The GLB Act also
establishes a minimum federal standard of financial privacy and adopts various
other provisions designed to improve the delivery of financial services to
consumers while maintaining an appropriate level of safety in the financial
services industry.
The GLB Act repeals the anti-affiliation provisions of the Glass-Steagall
Act and revises the Bank Holding Company Act of 1956 ("BHCA") to permit
qualifying holding companies, called "financial holding companies," to engage
in, or to affiliate with companies engaged in, a full range of financial
activities including banking, insurance activities (including insurance
portfolio investing), securities activities, merchant banking and additional
activities that are "financial in nature," incidental to financial activities
or, in certain circumstances, complementary to financial activities. A bank
holding company's subsidiary banks must be "well-capitalized" and "well-
managed" and have at least a "satisfactory" Community Reinvestment Act rating
for the bank holding company to elect status as a financial holding company.
A significant component of the GLB Act's focus on functional regulation
relates to the application of federal securities laws and SEC oversight to bank
securities activities previously subject to blanket exemptions. Among other
things, the GLB Act amends the definitions of "broker" and "dealer" under the
Securities Exchange Act of 1934 to remove the blanket exemption for banks.
Following effectiveness of these amendments in May, 2001, banks will no longer
be able to rely solely on their status as banks to avoid registration as
broker-dealers. Instead, banks will need to carefully consider their securities
activities in light of a new set of limited exemptions designed to allow banks
to continue, without broker-dealer registration, only those activities
traditionally considered to be primarily banking or trust activities. The GLB
Act also amends, effective May, 2001, the Investment Advisers Act of 1940 to
require the registration of banks that act as investment advisers for mutual
funds.
The Company is currently evaluating the effects of the GLB Act on its
activities and the activities of its banking subsidiaries, including reviewing
its prospects for expanded financial services through internal growth or
affiliations with third parties and considering the likelihood of increased
competition in the financial services industry as a result of the GLB Act and
how it will meet this increased competition. The Company, at present, has not
elected status as a "financial holding company."
THE COMPANY
GENERAL. The Company is registered as a bank holding company under BHCA and
is subject to regulation by the Federal Reserve Board. In accordance with
Federal Reserve Board policy, the Company is expected to act as a source of
financial strength to First Mid Bank and to commit resources to support First
Mid Bank in circumstances where the Company might not do so absent such policy.
Under the BHCA, the Company is subject to periodic examination by the Federal
Reserve Board and is required to file with the Federal Reserve Board periodic
reports of its operations and such additional information as the Federal Reserve
Board may require.
INVESTMENTS AND ACTIVITIES. Under the BHCA, a bank holding company must
obtain Federal Reserve Board approval before: (i) acquiring, directly or
indirectly, ownership or control of any voting shares of another bank or bank
holding company if, after such acquisition, it would own or control more than 5%
of such shares (unless it already owns or controls the majority of such shares);
(ii) acquiring all or substantially all of the assets of another bank; or (iii)
merging or consolidating with another bank holding company. Subject to certain
conditions (including certain deposit concentration limits established by the
BHCA), the Federal Reserve Board may allow a bank holding company to acquire
banks located in any state of the United States without regard to whether the
acquisition is prohibited by the law of the state in which the target bank is
located. In approving interstate acquisitions, however, the Federal Reserve
Board is required to give effect to applicable state law limitations on the
aggregate amount of deposits that may be held by the acquiring bank holding
company and its insured depository institution affiliates in the state in which
the target bank is located (provided that those limits do not discriminate
against out-of-state depository institutions or their holding companies) or
which require that the target bank has been in existence for a minimum period of
time (not to exceed five years) before being acquired by an out-of-state bank
holding company.
The BHCA also prohibits, with certain exceptions, the Company from
acquiring direct or indirect ownership or control of more than 5% of the voting
shares of any company which is not a bank and from engaging in any business
other than that of banking, managing and controlling banks or furnishing
services to banks and their subsidiaries. The principal exception to this
prohibition allows bank holding companies to engage in, and to own shares of
companies engaged in, certain businesses found by the Federal Reserve Board to
be "so closely related to banking ... as to be a proper incident thereto." Under
current regulations of the Federal Reserve Board, applicable to bank holding
companies, the Company and its non-bank subsidiaries are permitted to engage in,
among other activities, such banking-related businesses as the operation of a
thrift, sales and consumer finance, equipment leasing, the operation of a
computer service bureau, including software development, and mortgage banking
and brokerage. The BHCA generally does not place territorial restrictions on the
domestic activities of non-bank subsidiaries of bank holding companies.
Federal law also prohibits acquisition of "control" of a bank, such as
First Mid Bank, or bank holding company, such as the Company, without prior
notice to certain federal bank regulators. "Control" is defined in certain cases
as acquisition of 10% of the outstanding shares of a bank or bank holding
company.
CAPITAL REQUIREMENTS. Bank holding companies are required to maintain
minimum levels of capital in accordance with Federal Reserve Board capital
adequacy guidelines. If capital falls below minimum guideline levels, a bank
holding company, among other things, may be denied approval to acquire or
establish additional banks or non-bank businesses.
The Federal Reserve Board's capital guidelines establish the following
minimum regulatory capital requirements for bank holding companies: a risk-
based requirement expressed as a percentage of total risk-weighted assets, and a
leverage requirement expressed as a percentage of total assets. The risk- based
requirement consists of a minimum ratio of total capital to total risk- weighted
assets of 8%, at least one-half of which must be Tier 1 capital. The leverage
requirement consists of a minimum ratio of Tier 1 capital to total assets of 3%
for the most highly rated companies, with minimum requirements of at least 4%
for all others. For purposes of these capital standards, Tier 1 capital consists
primarily of permanent stockholders' equity less intangible assets (other than
certain mortgage servicing rights and purchased credit card relationships), and
total capital means Tier 1 capital plus certain other debt and equity
instruments which do not qualify as Tier 1 capital, limited amounts of
unrealized gains on equity securities and a portion of the Company's allowance
for loan and lease losses.
The risk-based and leverage standards described above are minimum
requirements, and higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual banking organizations.
For example, the Federal Reserve Board's capital guidelines contemplate that
additional capital may be required to take adequate account of, among other
things, interest rate risk, or the risks posed by concentrations of credit,
nontraditional activities or securities trading activities. Further, any banking
organization experiencing or anticipating significant growth would be expected
to maintain capital ratios, including tangible capital positions (I.E., Tier 1
capital less all intangible assets), well above the minimum levels.
As of December 31, 2000, the Company had regulatory capital, calculated on
a consolidated basis, in excess of the Federal Reserve Board's minimum
requirements, with a risk-based capital ratio of 11.74% and a leverage ratio of
7.32%.
FIRST MID BANK
GENERAL. First Mid Bank is a national bank, chartered under the National
Bank Act. The FDIC insures the deposit accounts of First Mid Bank. As a national
bank, First Mid Bank is a member of the Federal Reserve System and is subject to
the examination, supervision, reporting and enforcement requirements of the OCC,
as the primary federal regulator of national banks, and the FDIC, as
administrator of the deposit insurance fund.
DEPOSIT INSURANCE. As an FDIC-insured institution, First Mid Bank is
required to pay deposit insurance premium assessments to the FDIC. The FDIC has
adopted a risk-based assessment system under which all insured depository
institutions are placed into one of nine categories and assessed insurance
premiums based upon their respective levels of capital and results of
supervisory evaluations. Institutions classified as well-capitalized (as defined
by the FDIC) and considered healthy pay the lowest premium while institutions
that are less than adequately-capitalized (as defined by the FDIC) and
considered of substantial supervisory concern pay the highest premium. The FDIC
makes risk classification of all insured institutions for each semi-annual
assessment period.
During the year ended December 31, 2000, FDIC assessments ranged from 0% of
deposits to 0.27% of deposits. For the semi-annual assessment period beginning
January 1, 2001, FDIC assessment rates will continue to range from 0% of
deposits to 0.27% of deposits.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written agreement
with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution
has no tangible capital. Management of the Company is not aware of any activity
or condition that could result in termination of the deposit insurance of First
Mid Bank.
In addition to its insurance assessment, each insured bank is subject, in
2001, to quarterly debt service assessments in connection with bonds issued by a
government corporation that financed the federal savings and loan bailout. The
first quarter 2001 debt service assessment was .0212%.
OCC ASSESSMENTS. All national banks are required to pay supervisory fees to
the OCC to fund the operations of the OCC. The amount of such supervisory fees
is based upon each institution's total assets, including consolidated
subsidiaries, as reported to the OCC. During the year ended December 31, 2000,
First Mid Bank paid supervisory fees to the OCC totaling $129,000.
CAPITAL REQUIREMENTS. The OCC has established the following minimum capital
standards for national banks, such as First Mid Bank: a leverage requirement
consisting of a minimum ratio of Tier 1 capital to total assets of 3% for the
most highly-rated banks with minimum requirements of at least 4% for all others,
and a risk-based capital requirement consisting of a minimum ratio of total
capital to total risk-weighted assets of 8%, at least one-half of which must be
Tier 1 capital. For purposes of these capital standards, Tier 1 capital and
total capital consists of substantially the same components as Tier 1 capital
and total capital under the Federal Reserve Board's capital guidelines for bank
holding companies (SEE "--The Company--Capital Requirements").
The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular circumstances or
risk profiles of individual institutions. For example, the regulations of the
OCC provide that additional capital may be required to take adequate account of,
among other things, interest rate risk or the risks posed by concentrations of
credit, nontraditional activities or securities trading activities.
During the year ended December 31, 2000, First Mid Bank was not required by
the OCC to increase its capital to an amount in excess of the minimum regulatory
requirements. As of December 31, 2000, First Mid Bank exceeded its minimum
regulatory capital requirements with a leverage ratio of 7.54% and a risk-based
capital ratio of 12.04%.
Federal law provides the federal banking regulators with broad power to
take prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well-capitalized," "adequately-capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Depending upon the capital category to which an institution
is assigned, the regulators' corrective powers include: requiring the submission
of a capital restoration plan; placing limits on asset growth and restrictions
on activities; requiring the institution to issue additional capital stock
(including additional voting stock) or to be acquired; restricting transactions
with affiliates; restricting the interest rate the institution may pay on
deposits; ordering a new election of directors of the institution; requiring
that senior executive officers or directors be dismissed; prohibiting the
institution from accepting deposits from correspondent banks; requiring the
institution to divest certain subsidiaries; prohibiting the payment of principal
or interest on subordinated debt; and ultimately, appointing a receiver for the
institution.
DIVIDENDS. The National Bank Act imposes limitations on the amount of
dividends that may be paid by a national bank, such as First Mid Bank.
Generally, a national bank may pay dividends out of its undivided profits, in
such amounts and at such times as the bank's board of directors deems prudent.
Without prior OCC approval, however, a national bank may not pay dividends in
any calendar year which, in the aggregate, exceed the bank's year-to-date net
income plus the bank's adjusted retained net income for the two preceding years.
The payment of dividends by any financial institution or its holding
company is affected by the requirement to maintain adequate capital pursuant to
applicable capital adequacy guidelines and regulations, and a financial
institution generally is prohibited from paying any dividends if, following
payment thereof, the institution would be undercapitalized. As described above,
First Mid Bank exceeded its minimum capital requirements under applicable
guidelines as of December 31, 2000. As of December 31, 2000, approximately $7.3
million was available to be paid as dividends to the Company by First Mid Bank.
Notwithstanding the availability of funds for dividends, however, the OCC may
prohibit the payment of any dividends by First Mid Bank if the Federal Reserve
Board determines such payment would constitute an unsafe or unsound practice.
AFFILIATE AND INSIDER TRANSACTIONS. First Mid Bank is subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to the
Company and its subsidiaries, on investments in the stock or other securities of
the Company and its subsidiaries and the acceptance of the stock or other
securities of the Company or its subsidiaries as collateral for loans. Certain
limitations and reporting requirements are also placed on extensions of credit
by First Mid Bank to its directors and officers, to directors and officers of
the Company and its subsidiaries, to principal stockholders of the Company, and
to "related interests" of such directors, officers and principal stockholders.
In addition, federal law and regulations may affect the terms upon which
any person becoming a director or officer of the Company or one of its
subsidiaries or a principal stockholder of the Company may obtain credit from
banks with which First Mid Bank maintains a correspondent relationship.
SAFETY AND SOUNDNESS STANDARDS. The federal banking agencies have adopted
guidelines which establish operational and managerial standards to promote the
safety and soundness of federally-insured depository institutions. The
guidelines set forth standards for internal controls, information systems,
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits, asset quality and
earnings. In general, the guidelines prescribe the goals to be achieved in each
area, and each institution is responsible for establishing its own procedures to
achieve those goals. If an institution fails to comply with any of the standards
set forth in the guidelines, the institution's primary federal regulator may
require the institution to submit a plan for achieving and maintaining
compliance. The preamble to the guidelines states that the agencies expect to
require a compliance plan from an institution whose failure to meet one or more
of the guidelines are of such severity that it could threaten the safety and
soundness of the institution. Failure to submit an acceptable plan, or failure
to comply with a plan that has been accepted by the appropriate federal
regulator, would constitute grounds for further enforcement action.
SUPPLEMENTAL ITEM -- EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are elected annually by the Company's
board of directors and are identified below.
Name (Age) Position With Company
William S. Rowland (54) Chairman of the Board of Directors, President
and Chief Executive Officer
Michael L. Taylor (32) Vice President and Chief Financial Officer
John W. Hedges (53) President, First Mid Bank
Laurel G. Allenbaugh (41) Vice President
Christie L. Burich (44) Vice President, Secretary/Treasurer
Stanley E. Gilliland (56) Vice President
Robert J. Swift, Jr. (49) Vice President
William S. Rowland, age 54, has been Chairman of the Board of Directors,
President and Chief Executive Officer of the Company since May, 1999. He served
as Executive Vice President of the Company from 1997 to 1999 and as Treasurer
and Chief Financial Officer from 1989 to 1999. He also serves as Chairman of the
Board of First Mid Bank.
Michael L. Taylor, age 32, has been the Vice President and Chief Financial
Officer of the Company since May, 2000. He was with Amcore in Rockford, Illinois
from 1996 to 2000.
John W. Hedges, age 53, has been the President of First Mid Bank since
September, 1999. He was with National City Bank in Decatur, Illinois from 1976
to 1999.
Laurel G. Allenbaugh, age 41, has been Vice President of Operations since
February, 2000. She served as Controller of the Company and First Mid Bank from
1990 to February, 2000 and has been President of MIDS since 1998.
Christie L. Burich, age 44, has been Vice President of Investments since
1995 and Secretary since 1998.
Stanley E. Gilliland, age 56, has been Vice President of Lending of the
Company since 1985, and has been Executive Vice President of Lending for First
Mid Bank since 1990.
Robert J. Swift, Jr., age 49, has been Vice President of the Trust and Farm
Department of the Company since August, 2000. He was with Central Trust Bank in
Jefferson City, Missouri from 1989 to 2000.
ITEM 2. PROPERTIES
All of the following properties are owned by the Company or First Mid Bank
except those specifically identified as being leased.
FIRST MID BANK
MATTOON
First Mid Bank's main office is located at 1515 Charleston Avenue, Mattoon,
Illinois. The office building consists of a one-story structure with occupied
basement which was opened in 1965 with approximately 36,000 square feet of
office space, four walk-in teller stations, and three sit-down teller stations.
Adjacent to this building is a parking lot with parking for approximately one
hundred cars. A drive-up facility with nine drive-up lanes, including a drive-up
automated teller machine ("ATM"), is located across the street from First Mid
Bank's main office. During 1997, First Mid Bank began a remodeling project of
its main office which was completed in mid-1998. Costs associated with this
project totaled approximately $1.6 million.
First Mid Bank has a facility at 333 Broadway Avenue East, Mattoon,
Illinois. The one-story office building contains approximately 7,600 square feet
of office space. The main floor provides space for five teller windows, two
private offices, a safe deposit vault and four drive-up lanes. There is adequate
parking located adjacent to the building. A drive-up ATM is located adjacent to
the building.
First Mid Bank leases a facility at 1504-A Lakeland Boulevard, Mattoon,
Illinois which provides space for three tellers, two drive-up lanes and a walk-
up ATM.
First Mid Bank donated an office building located at 1701 Charleston
Avenue, Mattoon, Illinois and an adjacent parking lot during 2000.
First Mid Bank owns a facility located at 1520 Charleston Avenue, Mattoon,
Illinois, which is used as the Corporate Headquarters of the Company and is used
by MIDS for its data processing and back room operations for the Company and
First Mid Bank. The office building consists of a two-story structure with an
occupied basement which has approximately 20,000 square feet of office space.
SULLIVAN
First Mid Bank operates two locations in Sullivan, Illinois. The main
office is located at 200 South Hamilton Street, Sullivan, Illinois. Its office
building is a one-story structure containing approximately 11,400 square feet of
office space with five tellers, six private offices and four drive-up lanes.
Adequate customer parking is available on two sides of the main office building.
The second office is a leased facility at 435 South Hamilton, Sullivan, Illinois
in the IGA. The facility has two teller stations, a vault, an ATM and a night
depository.
NEOGA
First Mid Bank's office in Neoga, Illinois, is located at 102 East 6th
Street, Neoga, Illinois. The building consists of a one-story structure
containing approximately 4,000 square feet of office space. The main office
building provides space for four tellers in the lobby of the building, two
drive-up tellers, four private offices, two night depositories, and an ATM.
Adequate customer parking is available on three sides of the main office
building. During 1996, an adjacent building with approximately 400 square feet
was purchased and is being held for future expansion.
TUSCOLA
First Mid Bank operates an office in Tuscola, Illinois, which is located at
410 South Main Street. The all brick building consists of a one-story structure
with approximately 4,000 square feet of office space. This main office building
provides for four lobby tellers, two drive-up tellers, four private offices, a
conference room, four drive-thru lanes, including one with a drive-up ATM and
one with a drive-up night depository. Adequate customer parking is available
just outside the main entrance.
CHARLESTON
First Mid Bank has three offices in Charleston, Illinois. The main office,
acquired in March, 1997, is located at 500 West Lincoln Avenue, Charleston,
Illinois. This one-story facility contains approximately 8,400 square feet with
five teller stations, eight private offices and four drive-up lanes.
A second facility is located at 701 Sixth Street, Charleston, Illinois. It
is a one-story facility with an attached two-bay drive-up structure and consists
of approximately 5,500 square feet of office space. Adequate parking is
available to serve its customers. The office space is comprised of three teller
stations, three private offices, storage area, and a night depository.
Approximately 2,200 square feet of this building is rented out to non-
affiliated companies.
The third facility consists of approximately 400 square feet of leased
space at the Martin Luther King Student Union on the Eastern Illinois University
campus. The facility has two walk-up teller stations and two sit- down
teller/CSR stations.
Five ATMs are located in Charleston. One drive-up ATM is located in the
parking lot of the facility at 500 West Lincoln Avenue, one in the parking lot
of Save-A-Lot at 1400 East Lincoln Avenue, and one drive-up ATM is located in
the parking lot of the 6th St. facility. The fourth is an off-site walk-up ATM
located in the student union at Eastern Illinois University and the fifth ATM is
a drive-up unit located on the Eastern Illinois University campus in a parking
lot at the corner of 9{th} Street and Roosevelt.
URBANA
First Mid Bank owns a facility located at 601 South Vine Street, Urbana,
Illinois. Its office building consists of a one-story structure and contains
approximately 3,600 square feet. The office building provides space for three
tellers, two private offices and two drive-up lanes. An ATM machine is located
in front of the building. An adequate customer parking lot is located on the
south side of the building.
EFFINGHAM
First Mid Bank operates a facility at 902 North Keller Drive, Effingham,
Illinois. The building is a two-story structure with approximately 4,000 square
feet of office space. This office space consists of four teller stations, three
drive-up teller lanes, five private offices and a night depository. Adequate
parking is available to customers in front of the facility.
First Mid Bank also owns property at 900 North Keller Drive, Effingham,
Illinois which provides additional customer parking along with a drive-up ATM.
ALTAMONT
First Mid Bank has a banking facility located at 101 West Washington
Street, Altamont, Illinois. This building is a one-story structure which has
approximately 4,300 square feet of office space. The office space consists of
nine teller windows, three drive-up teller lanes (one of which facilitates an
ATM), seven private offices, one conference room and a night depository.
Adequate parking is available on three sides of the building.
ARCOLA
First Mid Bank leases a facility at 324 South Chestnut Street, Arcola,
Illinois. This building is a one-story structure with approximately 1,140 square
feet of office space. This office space consists of two lobby teller stations,
one loan station, two drive-up teller lanes, one private office and a night
depository. A drive-up ATM lane is available adjacent to the teller lanes.
Adequate parking is available to customers in front of the facility.
MONTICELLO
First Mid Bank has two offices in Monticello. The main facility is located
on the north-east corner of the historic town square at 100 West Washington
Street. This building is a two-story structure that has 8,000 square feet of
office space consisting of five teller stations, seven private offices, and a
night depository. The second floor is furnished and is currently being lease to
a wholesale pharmacy company and the basement is used for storage. Adequate
parking is available to customers in back of the facility.
A second facility is located at 219 West Center Street, Monticello,
Illinois. It is a one-story facility with two lobby teller stations and an
attached two-bay drive-up structure with a drive-up ATM and a night depository.
Adequate parking is available to serve its customers.
DELAND
First Mid Bank has an office at 220 North Highway Ave, DeLand, Illinois. It
is a one-story structure with one private office, three teller stations and a
night depository. Adequate parking is available in front of the building.
TAYLORVILLE
First Mid Bank has a banking facility located at 200 N. Main St.,
Taylorville, Illinois. This one-story building has approximately 3,700 square
feet with five teller stations, three private offices, one drive-up lane, and a
finished basement. A drive-up ATM is located in the parking lot and adequate
customer parking is available adjacent to the building.
DECATUR
First Mid Bank leases a facility at 111 E. Main St., Decatur, Illinois. The
office space comprised of 4,340 square feet contains three lobby teller windows,
two drive-up lanes, a night depository, three private offices, safe deposit and
loan vaults, and a conference room. Customer parking is available adjacent to
the building.
ITEM 3. LEGAL PROCEEDINGS
Since First Mid Bank acts as a depository of funds, it is named from time
to time as a defendant in lawsuits (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, in which
the Company is involved, constitute ordinary routine litigation incidental to
the business of the Company 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 may be recovered.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON SHARES AND RELATED SHAREHOLDER MATTERS
The Company's common stock was held by approximately 722 shareholders of
record as of December 31, 2000, and is traded in the over-the-counter market.
The following table shows, for the indicated periods, the range of reported
prices per share of the Company's common stock in the over-the-counter market.
These quotations represent inter-dealer prices without retail mark-ups,
mark-downs or commissions and do not necessarily represent actual transactions.
QUARTER HIGH LOW
2000
4th $ 29 7/8 $ 27 3/4
3rd 29 1/2 27 1/2
2nd 33 28
1st 34 1/8 32
1999
4th $ 36 1/4 $ 33 1/2
3rd 36 35 1/4
2nd 39 1/2 35 3/4
1st 37 33
The following table sets forth the cash dividends per share on the
Company's common stock for the last two years.
DIVIDEND
DATE DECLARED DATE PAID PER SHARE
5-19-1999 6-18-1999 $.25
12-14-1999 1-05-2000 $.30
5-17-2000 6-16-2000 $.27
12-19-2000 1-05-2001 $.32
The Company's shareholders are entitled to receive such dividends as are
declared by the board of directors, which considers payment of dividends
semiannually. The ability of the Company to pay dividends, as well as fund its
operations, is dependent upon receipt of dividends from First Mid Bank.
Regulatory authorities limit the amount of dividends which can be paid by First
Mid Bank without prior approval from such authorities. For further discussion of
First Mid Bank's dividend restrictions and capital requirements, see "Note 18"
of the Notes to the Consolidated Financial Statements included under Item 8 of
this document. Cash dividends have been declared by the Board of Directors of
the Company semi-annually during the two years ended December 31, 2000.
On November 15, 1999, the Company issued 248,177 shares of its common stock
to holders of its Series A Convertible preferred Stock upon the Company's
election to convert all of such preferred stock to common stock. The transaction
was exempt from registration pursuant to Section 3(a)(9) of the Securities Act
of 1933.
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth a five-year comparison of selected financial data.
(Dollars in thousands, except per share data)
2000 1999 1998 1997 1996
SUMMARY OF OPERATIONS
Interest income ................ $ 44,191 $ 39,168 $ 37,451 $ 37,805 $ 35,559
Interest expense ............... 22,573 18,415 18,626 19,131 17,805
Net interest income .......... 21,618 20,753 18,825 18,674 17,754
Provision for loan losses ...... 550 600 550 700 147
Other income ................... 6,689 6,703 6,340 5,421 4,799
Other expense .................. 20,062 19,387 17,119 16,039 15,977
Income before income taxes ... 7,695 7,469 7,496 7,356 6,429
Income tax expense ............. 2,035 2,237 2,434 2,630 2,263
Net income ................. $ 5,660 $ 5,232 $ 5,062 $ 4,726 $ 4,166
PER COMMON SHARE DATA
Basic earnings per share ....... $ 2.51 $ 2.40 $ 2.39 $ 2.30 $ 2.11
Diluted earnings per share ..... 2.50 2.29 2.24 2.17 1.99
Dividends per common share ..... .59 .55 .51 .46 .43
Book value per common share .... 25.77 22.63 23.61 21.55 19.56
FINANCIAL RATIOS
Net interest margin (TE) ....... 3.98% 4.09% 3.93% 3.96% 3.98%
Return on average assets ....... .92% .91% .95% .90% .85%
Return on average equity ....... 10.55% 10.14% 10.39% 11.08% 11.03%
Return on average common equity 10.55% 10.08% 10.47% 11.23% 11.18%
Dividend payout ratio .......... 23.53% 22.95% 21.35% 19.99% 20.16%
Average equity to average assets 8.70% 8.96% 9.16% 8.11% 7.69%
Capital to risk-weighted assets 11.74% 11.98% 13.89% 12.20% 11.80%
YEAR END BALANCES
Total assets ................... $642,999 $601,103 $554,663 $532,978 $515,397
Net loans ...................... 426,026 385,380 346,350 355,587 345,533
Total deposits ................. 503,985 485,011 449,636 457,598 413,676
Total equity ................... 57,727 51,518 50,480 45,576 39,904
AVERAGE BALANCES
Total assets ................... $616,855 $575,903 $531,809 $525,751 $491,058
Net loans ...................... 406,505 356,031 345,254 352,495 323,540
Total deposits ................. 491,584 474,636 445,048 443,399 405,223
Total equity ................... 53,674 51,577 48,704 42,638 37,783
ITEM 7. 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 years ended December 31, 2000, 1999
and 1998. 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.
MERGERS AND ACQUISITIONS
In January, 2001, First Mid Bank announced an agreement to acquire the
Highland and Pocahontas branch offices of American Bank of Illinois. The
acquisition is expected to be completed April 20, 2001.
OVERVIEW
In 2000, the Company had net income of $5,660,000, up 8.2% from $5,232,000
in 1999. In 1999, net income increased 3.4% from $5,062,000 in 1998. Diluted
earnings per share was $2.50 in 2000 compared with $2.29 in 1999 and $2.24 in
1998. A summary of the factors which contributed to the changes in net income
follows (in thousands):
2000 VS 1999 1999 VS 1998
Net interest income $ 865 $1,928
Provision for loan losses 50 (50)
Other income, including securities transactions (14) 363
Other expenses (675) (2,268)
Income taxes 202 197
Increase in net income $ 428 $ 170
On May 7, 1999, the Company acquired the Monticello, Taylorville and DeLand
branch offices and deposit base of Bank One Illinois, N.A. This cash acquisition
added approximately $64 million to total deposits, $10 million to loans, $1.7
million to premises and equipment and $6.5 million to intangible assets. This
acquisition was accounted for using the purchase method of accounting whereby
the acquired assets and deposits of the branches were recorded at their fair
values as of the acquisition date. The operating results have been combined with
those of the Company since May 7, 1999.
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):
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
ASSETS
Interest-bearing $ 102 $ 6 6.35% $ 1,407 $ 70 4.99% $ 644 $ 33 5.12%
deposits
Federal funds sold 1,994 121 6.09% 9,799 485 4.95% 8,754 451 5.15%
Investment securities
Taxable 121,390 7,721 6.36% 125,311 7,425 5.93% 114,831 7,052 6.14%
Tax-exempt(1) 30,402 2,196 7.22% 29,762 2,125 7.14% 17,501 1,278 7.30%
Loans (2)(3) 409,649 34,893 8.52% 358,948 29,785 8.30% 348,055 29,072 8.35%
Total earning assets 563,537 44,937 7.97% 525,227 39,890 7.59% 489,785 37,886 7.73%
Cash and due from banks 16,628 17,438 15,944
Premises and equipment 15,807 14,873 12,745
Other assets 24,026 21,282 16,136
Allowance for loan (3,143) (2,917) (2,801)
losses
Total assets $616,855 $575,903 $531,809
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing
Deposits
Demand deposits $163,531 5,112 3.13% $147,753 3,809 2.58% $125,586 3,675 2.93%
Savings deposits 39,215 952 2.43% 40,875 944 2.31% 37,831 856 2.26%
Time deposits 226,259 12,258 5.42% 225,451 11,476 5.09% 222,562 12,255 5.51%
Securities sold under
agreements to 24,576 1,357 5.52% 22,063 948 4.29% 9,717 435 4.47%
repurchase
FHLB advances 36,979 2,409 6.51% 18,602 942 5.07% 18,740 1,008 5.38%
Federal funds purchased 1,047 66 6.34% 345 18 5.28% 364 19 5.19%
Long-term debt 4,325 329 7.61% 4,416 278 6.29% 5,629 378 6.72%
Total interest-bearing
liabilities 495,932 22,483 4.53% 459,505 18,415 4.01% 420,429 18,626 4.43%
Demand deposits 62,579 60,557 59,069
Other liabilities 4,670 4,264 3,607
Stockholders' equity 53,674 51,577 48,704
Total liabilities & $616,855 $575,903 $531,809
equity
Net interest income (TE) $ 22,454 $ 21,475 $ 19,260
Net interest spread 3.44% 3.58% 3.30%
Impact of non-interest
bearing
funds .54% .51% .63%
Net yield on interest-
earning
assets (TE) 3.98% 4.09% 3.93%
(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
past two years (in thousands):
2000 COMPARED TO 1999 1999 COMPARED TO 1998
INCREASE - (DECREASE) INCREASE - (DECREASE)
TOTAL RATE/ TOTAL RATE/
CHANGE VOLUME RATE VOLUME(4) CHANGE VOLUME RATE VOLUME(4)
EARNING ASSETS:
Interest-bearing deposits $(64) $(65) $ 19 $ (18) $ 37 $ 39 $ (1) $ (1)
Federal funds sold (364) (387) 112 (89) 34 53 (17) (2)
Investment securities:
Taxable 296 (232) 545 (17) 373 644 (248) (23)
Tax-exempt (1) 71 45 25 1 847 895 (28) (20)
Loans (2)(3) 5,108 4,206 790 112 713 911 (192) (6)
Total interest income 5,047 3,567 1,491 (11) 2,004 2,542 (486) (52)
Interest-Bearing
Liabilities
Interest-bearing deposits
Demand deposits 1,303 407 810 86 134 648 (437) (77)
Savings deposits 8 (39) 49 (2) 88 69 18 1
Time deposits 782 40 739 3 (779) 159 (926) (12)
Securities sold under
agreements to repurchase 409 108 270 31 513 552 (17) (22)
FHLB advances 1,466 931 269 266 (66) (7) (59) --
Federal funds purchased 48 37 4 7 (1) (1) -- --
Long-term debt 51 (6) 58 (1) (100) (82) (24) 5
Total interest expense 4,067 1,478 2,199 390 (211) 1,338 (1,445) (104)
Net interest income $ 980 $2,089 $(708) $ (401) $2,215 $1,204 $ 959 $ 52
(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 a tax equivalent basis, net interest income increased $980,000, or 4.6%
in 2000, compared to an increase of $2,215,000, or 11.5% in 1999. The increase
in net interest income in 2000 was due primarily to the increase in loan volume
with a decrease in the change due to rates. In 1999, the increase in net
interest income was due primarily to the decrease in the deposit rates combined
with a higher deposit base, including acquisitions, as well as the increase in
interest income due from an increase in the volume of earning assets.
In 2000, average earning assets increased by $38,310,000, or 7.3%, and
average interest-bearing liabilities increased $36,427,000, or 7.9%, compared
with 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 72.7% in 2000 from 68.3% in 1999
* average securities (as a percent of average earnings assets) decreased
2.6% to 26.9% in 2000 from 29.5% in 1999
* net interest margin has decreased to 3.98% in 2000 from 4.09% in 1999
and increased from 3.93% in 1998.
PROVISION FOR LOAN LOSSES
The provision for loan losses in 2000 was $550,000 compared to $600,000 in
1999 and $550,000 in 1998. 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 last
three years (in thousands):
$ CHANGE
FROM PRIOR YEAR
2000 1999 1998 2000 1999
Trust $ 2,010 $ 1,912 $ 1,746 $ 98 $ 166
Brokerage 437 456 304 (19) 152
Securities gains(losses) (3) 8 154 (11) (146)
Service charges 2,592 2,317 1,919 275 398
Mortgage banking 383 624 1,121 (241) (497)
Other 1,270 1,386 1,096 (116) 290
Total other income $ 6,689 $ 6,703 $ 6,340 $ (14) $ 363
* Total non-interest income decreased to $6,689,000 in 2000 as compared
to $6,703,000 in 1999 and $6,340,000 in 1998.
* Trust revenues increased $98,000 or 5.1% to $2,010,000 in 2000 from
$1,912,000 in 1999 and $1,746,000 in 1998 mostly due to the increase
in the fee structure for trust accounts.
* Trust assets, reported at market value, were $303 million, $324
million, and $338 million at December 31, 2000, 1999, and 1998,
respectively.
* Revenues from brokerage and annuity sales decreased $19,000 or 4.2% in
2000 as compared to 1999 as a result of decreased sales in annuities.
* Net securities losses in 2000 were $3,000 compared to net securities
gains of $8,000 in 1999 and $154,000 in 1998.
* Fees from service charges increased $275,000 or 11.9% to $2,592,000 in
2000 from $2,317,000 in 1999 and $1,919,000 in 1998. This increase was
primarily due to an increase in the charge for overdraft fees and club
fees.
* Mortgage banking income decreased $241,000 or 38.6% to $383,000 in
2000 from $624,000 in 1999. This decrease was in the volume of fixed
rate loans originated and sold by First Mid Bank. This decrease in
volume is largely attributed to less re-financings by customers as a
result of rising interest rates. Loan sold balances are as follows:
* $15 million (representing 203 loans) in 2000
* $36 million (representing 480 loans) in 1999
* $69 million (representing 825 loans) in 1998
* Other income decreased $116,000 or 8.4% to $1,270,000 in 2000 from
$1,386,000 in 1999 and $1,096,000 in 1998. This decrease was primarily
due to a 1999 $93,000 gain on the sale of property (net book value of
$230,000) in Mattoon, Tuscola and Charleston, Illinois, and a
decreases in payment collection fees in 2000.
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 last three years (in thousands):
$ CHANGE
FROM PRIOR YEAR
2000 1999 1998 2000 1999
Salaries and benefits $10,104 $ 9,616 $ 8,645 $ 488 $ 971
Occupancy and equipment 3,563 3,437 2,947 126 490
FDIC premiums 100 104 107 (4) (3)
Amortization of intangibles 1,190 1,024 764 166 260
Stationery and supplies 534 642 657 (108) (15)
Legal and professional fees 941 1,232 920 (291) 312
Marketing and promotion 769 643 500 126 143
Other operating expenses 2,861 2,689 2,579 172 110
Total other expense $20,062 $19,387 $17,119 $ 675 $2,268
* Total non-interest expense increased to $20,062,000 in 2000 from
$19,387,000 in 1999 and $17,119,000 in 1998.
* Salaries and employee benefits, the largest component of other
expense, increased $488,000 or 5.1% to $10,104,000 in 2000 from
$9,616,000 in 1999 and $8,645,000 in 1998. This increase can be
explained by:
* merit and incentive increases for continuing employees
* new facilities opened in Decatur and Charleston
* Occupancy and equipment expense increased $126,000 or 3.7% to
$3,563,000 in 2000 from $3,437,000 in 1999 and $2,947,000 in 1998.
This increase included depreciation expense recorded on technology
equipment placed in service. * The net amount of insurance premiums
assessed by the Federal Deposit Insurance Corporation ("FDIC") was
$100,000 in 2000, remaining fairly constant with $104,000 in 1999 and
$107,000 in 1998.
* Amortization of intangible assets increased $166,000 or 16.2% to
$1,190,000 in 2000 from $1,024,000 in 1999 and $764,000 in 1998. This
increase is 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 operating expenses decreased $101,000 or 1.9% to $5,105,000
in 2000 from $5,206,000 in 1999 and $4,656,000 in 1998. This decrease
was the net effect of the increase is cost associated with the new
Decatur and Charleston facilities in 2000 offset by the decrease in
costs associated with the new branches in Monticello, Taylorville and
DeLand in 1999.
INCOME TAXES
Total income tax expense amounted to $2,035,000 in 2000 as compared to
$2,237,000 in 1999 and $2,434,000 in 1998. Effective tax rates were 26.4%, 30.0%
and 32.5% respectively, for 2000, 1999 and 1998. The steady decrease in the
effective tax rates resulted primarily from increased tax exempt income.
ANALYSIS OF BALANCE SHEETS
LOANS
The loan portfolio (net of
unearned discount) is the largest
category of the Company's earning
assets. The following table summarizes
the composition of the loan portfolio
for the last five years (in thousands):
2000 1999 1998 1997 1996
Real estate - mortgage $299,252 $273,293 $244,501 $252,312 $241,240
Commercial, financial
and agricultural 100,201 89,176 78,579 73,854 75,028
Installment 28,674 24,501 25,194 29,266 30,423
Other 1,161 1,349 791 2,791 1,526
Total loans $429,288 $388,319 $349,065 $358,223 $348,217
At December 31, 2000, the Company had loan concentrations in agricultural
industries of $67.9 million, or 15.8%, 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 long-term commitment to residential real
estate lending. The 9.5% increase in the real estate loan category in 2000 was
primarily due to an increase in the volume of loans secured by commercial real
estate. In 1999, the increase in the real estate loan category was primarily due
to an increase in residential real estate loans.
The following table presents the balance of loans outstanding as of
December 31, 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 $ 61,532 $200,200 $ 37,520 $299,252
Commercial, financial
and agricultural 63,052 34,608 2,541 100,201
Installment 5,683 20,904 2,087 28,674
Other 295 295 571 1,161
Total loans $130,562 $256,007 $42,719 $429,288
(1) Based upon remaining maturity.
(2) Includes demand loans, past due loans and overdrafts.
As of December 31, 2000, loans with maturities over one year consisted of
$276,540,000 in fixed rate loans and $22,186,000 in variable rate loans. The
loan maturities noted above are based on the contractual provisions of the
individual loans. The Company has no general policy regarding rollovers and
borrower requests, which 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 (in thousands):
December 31,
2000 1999 1998 1997 1996
Nonaccrual loans $2,982 $1,430 $1,783 $1,194 $ 790
Loans past due ninety days
or more and still accruing 245 366 609 145 575
Renegotiated loans which are
performing in accordance
with revised terms 232 81 90 346 580
Total Nonperforming Loans $3,459 $1,877 $2,482 $1,685 $1,945
At December 31, 2000,approximately $1,274,000 of the nonperforming loans
resulted from collateral dependent loans to two borrowers. Management has
identified $125,000 possible loss exposure associated with the total
nonperforming loans.
Interest income that would have been reported if nonaccrual and
renegotiated loans had been performing totaled $154,000, $131,000 and $189,000
for the years ended December 31, 2000, 1999 and 1998, respectively. Interest
income that was included in income totaled $20,000, $7,000 and $7,000 for the
same periods.
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 probable losses that could ultimately be
realized from current loan exposures. 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 December 31, 2000, the Company's loan
portfolio included $67.9 million of loans to borrowers whose businesses are
directly related to agriculture. The balance increased $8.4 million 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 could nevertheless result in an increase in the level of
problem agriculture loans.
Loan loss experience for the years ending December 31, are summarized as
follows (dollars in thousands):
2000 1999 1998 1997 1996
Average loans outstanding,
net of unearned income $409,648 $358,948 $348,055 $355,167 $326,302
Allowance-beginning of year $ 2,939 $ 2,715 $ 2,636 $ 2,684 $ 2,814
Balance of
acquired branches -- 150 -- -- --
Charge-offs:
Commercial, financial
and agricultural 57 511 382 588 238
Real estate-mortgage 47 17 21 69 6
Installment 183 98 152 145 131
Total charge-offs 287 626 555 802 375
Recoveries:
Commercial, financial
and agricultural 26 69 28 28 53
Real estate-mortgage 1 3 30 1 --
Installment 33 28 26 25 45
Total recoveries 60 100 84 54 98
Net charge-offs 227 526 471 748 277
Provision for loan losses 550 600 550 700 147
Allowance-end of year $ 3,262 $ 2,939 $ 2,715 $ 2,636 $ 2,684
Ratio of net charge-offs to
average loans .06% .15% .14% .21% .08%
Ratio of allowance for loan
losses to loans outstanding
(less unearned interest
at end of period) .76% .76% .78% .74% .77%
Ratio of allowance for loan
losses to nonperforming
loans 94.3% 156.6% 109.4% 156.4% 138.0%
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 2000, the Company had net charge-offs of $227,000, compared to
$526,000 in 1999 and $471,000 in 1998. At December 31, 2000, the allowance for
loan losses amounted to $3,262,000, or .76% of total loans, and 94.3% of
nonperforming loans. At December 31, 1999, the allowance was $2,939,000, or .76%
of total loans, and 156.6% of nonperforming loans.
The allowance for loan losses, in management's judgment, is allocated as
follows to cover probable loan losses (in thousands):
December 31, 2000 December 31, 1999 December 31, 1998
ALLOWANCE % OF ALLOWANCE % OF ALLOWANCE % OF
FOR LOANS FOR LOANS FOR LOANS
LOAN TO TOTAL LOAN TO TOTAL LOAN TO TOTAL
LOSSES LOANS LOSSES LOANS LOSSES LOANS
Real estate-mortgage $ 267 69.7% $ 242 70.4% $ 264 70.1%
Commercial, financial
and agricultural 2,453 23.3% 1,997 23.0% 1,961 22.5%
Installment 182 6.7% 181 6.3% 166 7.2%
Other -- .3% -- .3% -- .2%
Total allocated 2,902 2,420 2,391
Unallocated 360 N/A 519 N/A 324 N/A
Allowance at end of
year $3,262 100.0% $2,939 100.0% $2,715 100.0%
December 31, 1997 December 31, 1996
ALLOWANCE % OF ALLOWANCE % OF
FOR LOANS FOR LOANS
LOAN TO TOTAL LOAN TO TOTAL
LOSSES LOANS LOSSES LOANS
Real estate-mortgage $ 245 70.4% $ 434 69.3%
Commercial, financial
and agricultural 1,699 20.6% 1,854 21.5%
Installment 192 8.2% 152 8.7%
Other -- .8% -- .5%
Total allocated 2,136 2,440
Unallocated 500 N/A 244 N/A
Allowance at end of
year $2,636 100.0% $2,684 100.0%
The allowance is allocated to the individual loan categories by a specific
allocation for all classified loans plus a percentage of loans not classified
based on historical losses.
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 year-end amortized cost of the
securities for the last three years (in thousands):
DECEMBER 31,
2000 1999 1998
% OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 89,202 58% $ 92,180 58% $ 91,069 58%
Obligations of states and
political subdivisions 30,434 20 30,281 19 27,674 18
Mortgage-backed securities 27,750 18 32,578 21 35,209 22
Other securities 5,873 4 2,579 2 2,509 2
Total securities $153,259 100% $157,618 100% $156,461 100%
At December 31, 2000, there was no material change to the mix of the
investment portfolio from December 31, 1999, except for the decrease in
mortgage-backed securities due to scheduled and prepayments of principal and the
increase of other securities due to the purchase of corporate bonds.
The following table indicates the expected maturities of investment
securities classified as available-for-sale and held-to- maturity, presented at
amortized cost, at December 31, 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 $73,193 $ 8,745 $ 4,264 $ 89,202
Obligations of state and
political subdivisions 232 3,459 11,781 12,205 27,677
Mortgage-backed securities 120 9,516 11,488 6,626 27,750
Other securities -- -- -- 5,873 5,873
Total Investments $ 3,352 $86,168 $32,014 $28,968 $150,502
Weighted average yield 5.32% 5.87% 5.86% 6.33% 5.95%
Full tax-equivalent yield 5.54% 5.96% 6.70% 7.37% 6.38%
Held-to-maturity:
Obligations of state and
political subdivisions $ 686 $ 635 $ 795 $ 641 $ 2,757
Weighted average yield 4.80% 5.37% 5.45% 5.44% 5.27%
Full tax-equivalent yield 7.27% 8.13% 8.26% 8.25% 7.98%
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.
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
December 31, 2000.
DEPOSITS
Funding of 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 at December 31, 2000, 1999 and 1998 (dollars
in thousands):
2000 1999 1998
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
Demand deposits:
Non-interest bearing $ 62,579 - $ 60,557 - $ 59,069 -
Interest bearing 163,531 3.13% 147,753 2.58% 125,586 2.93%
Savings 39,215 2.43% 40,875 2.31% 37,831 2.26%
Time deposits 226,259 5.42% 225,451 5.09% 222,562 5.51%
Total average deposits $491,584 3.73% $474,636 3.42% $445,048 3.77%
The following table sets forth the maturity of time deposits of $100,000 or
more (in thousands):
December 31,
2000 1999 1998
3 months or less $ 15,413 $ 16,915 $ 21,510
Over 3 through 6 months 20,283 11,708 8,285
Over 6 through 12 months 18,668 11,444 4,608
Over 12 months 8,558 3,854 8,995
Total $ 62,922 $ 43,921 $ 43,398
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 for the last three years is presented
below (in thousands):
2000 1999 1998
At December 31:
Securities sold under agreements to repurchase $31,096 $32,308 $26,018
Federal Home Loan Bank advances:
Overnight 20,000 3,000 -
Fixed term - due after one year 20,300 18,500 19,500
Federal funds purchased - 1,175 -
Total $71,396 $54,983 $45,518
Average interest rate at year end 6.06% 4.86% 4.51%
Maximum Outstanding at Any Month-end
Securities sold under agreements to repurchase $34,546 $32,308 $26,018
Federal Home Loan Bank advances:
Overnight 44,000 18,000 5,500
Fixed term - due in one year or less - - -
Fixed term - due after one year 20,300 20,500 20,500
Federal funds purchased 1,000 1,175 5,750
Total $99,846 $71,983 $57,767
Averages for the Year
Securities sold under agreements to repurchase $23,349 $22,063 $ 9,717
Federal Home Loan Bank advances:
Overnight 25,214 1,486 236
Fixed term - due in one year or less - - -
Fixed term - due after one year 10,345 17,116 18,504
Federal funds purchased 1,223 345 364
Total $60,131 $41,010 $28,821
Average interest rate during the year 6.12% 4.65% 5.07%
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 agricultural loan demand. This loan demand was previously
funded primarily through deposits by the State of Illinois. The fixed term
advances consists primarily of $20.3 million which First Mid Bank is using to
fund agricultural loans:
* $5 million advance at 6.16% with a 5-year maturity, due 03/20/05
* $2.3 million advance at 6.10% with a 5-year maturity, due 04/07/05
* $5 million advance at 6.12% with a 5-year maturity, due 09/06/05
* $3 million advance at 6.58% with a 2-year maturity, due 10/10/02
* $5 million advance at 5.34% with a 5-year maturity, due 12/14/05.
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 an effort to
maintain a cumulative one- year gap to earning assets ratio of less than 30% of
total earning assets.
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 December 31, 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 $ 2,725 $ - $ - $ - $ -
Taxable investment securities 17,945 10,561 5,621 9,868 78,397
Nontaxable investment securities 80 207 1,165 878 28,148
Loans 65,838 28,792 26,117 36,560 271,980
Total $ 86,588 $ 39,560 $ 32,903 $ 47,306 $ 378,525
INTEREST BEARING LIABILITIES:
Savings and N.O.W. accounts 150,010 - - - -
Money market accounts 47,408 - - - -
Other time deposits 24,289 34,755 53,963 68,632 58,282
Other borrowings 20,000 - - - 20,345
Long-term debt 4,325 - - - -
Total $ 246,032 $ 34,755 $ 53,963 $ 68,632 $ 78,627
Periodic GAP $(159,444) $ 4,805 $(21,060) $(21,326) $ 299,898
Cumulative GAP $(159,444) $(154,639) $(175,699) $(197,025) $ 102,873
GAP as a % of interest earning assets:
Periodic (27.3%) 0.8% (3.6%) (3.6%) 51.3%
Cumulat (27.3%) (26.4%) (30.0%) (33.7%) 17.6%
At December 31, 2000, the Company was liability sensitive on a cumulative
basis through the twelve- month time horizon. Accordingly, future increases in
interest rates 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 December 31, 2000, stockholders' equity increased $6,209,000 or 12.1% to
$57,727,000 from $51,518,000 as of December 31, 1999. During 2000, net income
contributed $5,660,000 to equity before the payment of dividends to common
stockholders of $1,326,000. The change in the market value of available-for-sale
investment securities increased stockholders' equity by $2,977,000, net of tax.
STOCK PLANS
DEFERRED COMPENSATION PLAN
Effective September 30, 1998, the Company adopted the provisions of the
Emerging Issues Task Force Issue No. 97-14, "ACCOUNTING FOR DEFERRED
COMPENSATION ARRANGEMENTS WHERE AMOUNTS EARNED ARE HELD IN A RABBI TRUST AND
INVESTED" ("EITF 97- 14") for purposes of the First Mid- Illinois Bancshares,
Inc. Deferred Compensation Plan ("DCP"). At December 31, 2000, the Company
classified the cost basis of its common stock issued and held in trust in
connection with the DCP of approximately $1,218,000 as treasury stock. The
Company also classified the cost basis of its related deferred compensation
obligation of approximately $1,218,000 as an equity instrument (deferred
compensation).
The DCP was effective as of June, 1984, in which the purpose is to enable
directors, advisory directors, and key officers the opportunity 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.
During 1996, the Company began issuing common stock for participants of the DCP.
The Company issued, pursuant to DCP:
* 1,070 common shares during 2000
* 5,820 common shares during 1999
* 4,677 common shares during 1998.
FIRST RETIREMENT AND SAVINGS PLAN
The First Retirement and Savings Plan ("401k plan") was effective beginning
in 1985. Employees are eligible to participate in the 401k plan after six months
of service to the Company. During 1996, the Company began issuing common stock
as an investment option for participants of the 401k plan. The Company issued,
pursuant to the 401k plan:
* 430 common shares during 2000
* 3,275 common shares during 1999
* 21,579 common shares during 1998.
DIVIDEND REINVESTMENT PLAN
The Dividend Reinvestment Plan ("DRIP") was effective as of October, 1994.
The purpose of the DRIP is to provide participating stockholders with a simple
and convenient method of investing cash dividends paid by the Company on its
shares of common and preferred shareholders into newly-issued common shares of
the Company. All holders of record of the Company's common or preferred stock
are eligible to voluntarily participate in the DRIP. The DRIP is administered by
Harris Trust and Savings Bank and offers a way to increase one's investment in
the Company. Of the $1,326,000 in common stock dividends paid during 2000,
$725,000 or 54.7% was reinvested into shares of common stock of the Company
through the DRIP.
Events that resulted in common shares being reinvested in the DRIP:
* during 2000, 500 common shares were issued from stock options that
were granted in October, 1997 and exercised in May, 2000.
* during 2000, 21,444 common shares were issued from common stock
dividends.
* during 1999, 500 common shares were issued from stock options that
were granted in December, 1998 and exercised in May, 1999.
* during 1999, 181,484 common shares were issued from converting 449
preferred shares.
* during 1999, 21,023 common shares were issued from common and
preferred stock dividends.
* during 1998, 1,000 common shares were issued from stock options that
were granted in October, 1997 and December, 1997 and exercised in
August, 1998.
* during 1998, 2,425 common shares were issued from converting 6
preferred shares.
* during 1998, 20,837 common shares were issued from common and
preferred stock dividends.
STOCK INCENTIVE PLAN
In December, 1997, the Company established a Stock Incentive Plan ("SI
Plan") 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 the SI 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 following stock options have been awarded by the Company:
* December, 2000 granted 19,500 options at an option price of $28.25.
* January, 2000 granted 3,000 options at an option price of $34.50.
* December, 1999 granted 9,500 options at an option price of $34.50;
canceled 1,000 options in December, 2000.
* December, 1998 granted 11,500 options at an option price of $35.00;
exercised 500 options in May, 1999; canceled 2,000 options in
December, 1999; canceled 1,000 options in December, 2000.
* December, 1997 granted 11,500 options at an option price of $33.73;
exercised 500 options in August, 1998; canceled 1,500 options in
December, 1999; canceled 1,500 options in December, 2000.
* October, 1997 granted 19,500 options at an option price of $23.51;
exercised 500 options in August, 1998; canceled 1,000 options in
December, 1999; exercised 500 options in May, 2000; canceled 1,500
options in December, 2000.
The Company applied APB Opinion No. 25 in accounting for the SI Plan and,
accordingly, compensation cost based on fair value at grant date has not been
recognized for its stock options in the consolidated financial statements for
the years ended December 31, 2000, 1999, and 1998.
STOCK REPURCHASE PROGRAM
On August 5, 1998, the Company announced a stock repurchase program of up
to 3% of its common stock. The shares will be repurchased at market. During
2000, 60,169 shares (2.7%) at a total price of $1,881,000 were repurchased by
the Company, 9,696 shares (.4%) at a total price of $337,000 were repurchased by
the Company in 1999 and 13,539 shares (.7%) at a total price of $507,000 were
purchased in 1998. Treasury Stock is further affected by activity in the
Deferred Compensation Plan.
CAPITAL RATIOS
Minimum regulatory requirements for highly-rated banks that do not expect
significant growth is 8% for the Total Capital to Risk-Weighted Assets ratio and
3% for the Tier 1 Capital to Average Assets ratio. Other institutions, not
considered highly-rated, are required to maintain a ratio of Tier 1 Capital to
Risk-Weighted Assets of 4% to 5% depending on their particular circumstances and
risk profiles. The Company and First Mid Bank have capital ratios above the
regulatory capital requirements.
A tabulation of the Company's and First Mid Bank's capital ratios as of
December 31, 2000 follows:
TIER ONE CAPITAL TOTAL CAPITAL TIER ONE CAPITAL
TO RISK-WEIGHTED TO RISK-WEIGHTED TO AVERAGE
ASSETS ASSETS ASSETS
First Mid-Illinois Bancshares, Inc.
(Consolidated) 10.96% 11.74% 7.32%
First Mid-Illinois Bank & Trust, N.A. 11.26% 12.04% 7.54%
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.
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 December 31, 2000, the excess collateral at
the Federal Home Loan Bank will support approximately $57 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 assumptions on U.S. Government Treasuries and
Agencies
* operating activities, including schedule 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
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). 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 balance sheet at fair
value. The accounting for the changes in fair value 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. The gain or loss due to
changes in fair value is recognized in earnings or as other comprehensive income
in the statement of stockholders' equity, depending on the type of instrument
and whether or not it is considered a hedge. In June 1999, the FASB issued SFAS
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the effective date of Statement No. 133." This statement defers the adoption of
SFAS 133 to fiscal quarters of fiscal years beginning after June 15, 2000. The
FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities - an amendment of FASB Statement No. 133" in June
2000, which addresses various implementation issues relating to SFAS 133.
Adoption of the above Statements did not have a material impact on the Company's
financial position, results of operation or liquidity.
Statement of Financial Accounting Standards ("SFAS") No. 140 "ACCOUNTING
FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF
LIABILITIES", was issued by the Financial Accounting Standards Board (FASB) in
September of 2000. SFAS No. 140 supersedes and replaces FASB SFAS No. 125,
"ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES". Accordingly, SFAS No. 140 is now the authoritative accounting
literature for transfers and servicing of financial assets and extinguishments
of liabilities. SFAS No. 140 also includes several additional disclosure
requirements in the area of securitized financial assets and collateral
arrangements. The provisions of SFAS No. 140 related to transfers of financial
assets are to be applied to all transfers of financial assets occurring after
March 31, 2001. The collateral recognition and disclosure provisions in SFAS No.
140 are effective for fiscal years ending after December 15, 2000. The Company
anticipates that the adoption of SFAS No. 140 will not have a material impact on
the Company's results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk arises primarily from interest rate risk inherent
in its lending, investing and deposit taking activities, which are restricted to
First Mid Bank. The Company does not currently use derivatives to manage market
or interest rate risks. For a discussion of how management of the Company
addresses and evaluates interest rate risk see also "Item 7. Managements'
Discussion and Analysis of Financial Condition and Results of Operations -
Interest Rate Sensitivity."
Based on the financial analysis performed as of December 31, 2000, which
takes into account how the specific interest rate scenario would be expected to
impact each interest-earning asset and each interest-bearing liability, the
Company estimates that changes in the prime interest rate would impact First Mid
Bank's performance as follows:
Increase (Decrease) In
Net Interest Net Interest Return On
DECEMBER 31, 2000 Income Margin Equity
Prime rate is 8.50% (000) 2000=3.74% 2000=11.16%
Prime rate increase of:
200 basis points to 10.50% $ (1,523) (6.36)% (2.56)%
100 basis points to 9.50% (814) (3.40)% (1.36)%
Prime rate decrease of:
200 basis points to 6.50% 597 2.49% .96%
100 basis points to 7.50% 70 .29% .12%
The following table shows the same analysis performed as of December 31,
1999.
Increase (Decrease) In
Net Interest Net Interest Return On
DECEMBER 31, 1999 Income Margin Equity
Prime rate is 8.50% (000) 1999=3.80% 1999=11.20%
Prime rate increase of:
200 basis points to 10.50% $ (1,377) (6.05)% (2.38)%
100 basis points to 9.50% (585) (2.63)% (1.00)%
Prime rate decrease of:
200 basis points to 6.50% (365) (1.61)% (.62)%
100 basis points to 7.50% 111 .53% .18%
The First Mid Bank's board of directors has adopted an interest rate risk
policy which establishes maximum decreases in the percentage change in net
interest margin of 5% in a 100 basis point rate shift and 10% in a 200 basis
point rate shift.
No assurance can be given that the actual net interest margin (percentage)
or net interest income would increase or decrease by such amounts in response to
a 100 or 200 basis point increase or decrease in the prime rate.
Interest rate sensitivity analysis is also used to measure the Company's
interest risk by computing estimated changes in net portfolio value ("NPV") of
its cash flows from assets, liabilities and off-balance sheet items in the event
of a range of assumed changes in market interest rates. NPV represents the
market value of portfolio equity and is equal to the market value of assets
minus the market value of liabilities, with adjustments made for off-balance
sheet items. This analysis assesses the risk of loss in market risk sensitive
instruments in the event of a sudden and sustained two percent increase or
decrease in market interest rates. The following tables present, in thousands,
First Mid Bank's projected change in NPV for the various rate shock levels at
December 31, 2000 and December 31, 1999. All market risk sensitive instruments
presented in the tables are held-to-maturity or available- for-sale. First Mid
Bank has no trading securities.
DECEMBER 31, 2000
Estimated
Changes In NPV As A
Interest Rates Estimated % of PV Amount Percent
(basis points) NPV of Assets of Change of Change
+200 bp $53,155 8.35% $(3,782) (6.42)%
0 bp 58,885 9.19%
-200 bp 62,108 9.65% 3,223 5.47%
DECEMBER 31, 1999
Estimated
Changes In NPV As A
Interest Rates Estimated % of PV Amount Percent
(basis points) NPV of Assets of Change of Change
+200 bp $48,571 8.36% $(4,407) (8.38)%
0 bp 52,546 8.78%
-200 bp 56,980 9.26% 4,002 7.62%
As indicated above, at December 31, 2000, in the event of a sudden and
sustained increase in prevailing market interest rates, First Mid Bank's NPV
would be expected to decrease, and that in the event of a sudden and sustained
decrease in prevailing market interest rates, First Mid Bank's NPV would be
expected to increase. At December 31, 2000, First Mid Bank's estimated changes
in NPV were within the industry guidelines which normally allow a change in
capital of +/-10% from the base case scenario.
The NPV calculation is based on the net present value of discounted cash
flows utilizing market prepayment assumptions and market rates of interest
provided by Bloomberg quotations.
Computation of prospective effects of hypothetical interest rate changes
are based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposit decay, and should not be relied upon as
indicative of actual results. Further, the computations do not contemplate any
actions First Mid Bank may undertake in response to changes in interest rates.
Certain shortcomings are inherent in the method of analysis presented in
the computation of NPV. Actual values may differ from those projections set
forth in the table, should market conditions vary from assumptions used in the
preparation of the table. Certain assets, such as adjustable-rate loans, have
features which restrict changes in interest rates on a short-term basis and over
the life of the asset. In addition, the proportion of adjustable-rate loans in
First Mid Bank's portfolio change in future periods as market rates change.
Further, in the event of a change in interest rates, prepayment and early
withdrawal levels would likely deviate significantly from those assumed in the
table. Finally, the ability of many borrowers to repay their adjustable-rate
debt may decrease in the event of an interest rate increase.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
(In thousands, except share data) 2000 1999
ASSETS
Cash and due from banks (note 4):
Non-interest bearing $ 22,035 $ 21,054
Interest bearing 80 78
Federal funds sold 2,725 710
Cash and cash equivalents 24,840 21,842
Investment securities (note 5):
Available-for-sale, at fair value 150,034 150,157
Held-to-maturity, at amortized cost (estimated fair value of
$2,800 and $2,077 at December 31, 2000 and 1999, respectively) 2,757 2,132
Loans (note 5 and 11) 429,288 388,319
Less allowance for loan losses (note 7) 3,262 2,939
Net loans 426,026 385,380
Premises and equipment, net (note 8) 15,375 16,153
Accrued interest receivable 7,395 5,933
Intangible assets, net (notes 3 and 9) 12,150 13,340
Other assets (note 17) 4,422 6,166
TOTAL ASSETS $ 642,999 $ 601,103
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (note 10):
Non-interest bearing $ 66,646 $ 60,555
Interest bearing 437,339 424,456
Total deposits 503,985 485,011
Accrued interest payable 2,628 2,296
Federal funds purchased (note 11) -- 1,175
Securities sold under agreements to repurchase (notes 5 and 11) 31,096 32,308
Federal Home Loan Bank advances (note 11) 40,300 21,500
Long-term debt (note 12) 4,325 4,325
Other liabilities (note 17) 2,938 2,970
TOTAL LIABILITIES 585,272 549,585
Stockholders' Equity (notes 13 and 16)
Common stock, $4 par value; authorized 6,000,000 shares;
issued 2,325,469 shares in 2000 and 2,302,022 shares in 1999 9,302 9,208
Additional paid-in-capital 12,293 11,608
Retained earnings 39,169 34,835
Deferred compensation 1,218 1,123
Accumulated other comprehensive loss (288) (3,265)
Less treasury stock at cost, 85,404 shares
in 2000 and 25,235 shares in 1999 (3,967) (1,991)
TOTAL STOCKHOLDERS' EQUITY 57,727 51,518
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 642,999 $ 601,103
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 2000, 1999 and 1998
(In thousands, except per share data)
2000 1999 1998
INTEREST INCOME:
Interest and fees on loans $ 34,893 $ 29,785 $ 29,072
Interest on investment securities:
Taxable 7,722 7,425 7,052
Exempt from federal income tax 1,449 1,403 843
Interest on federal funds sold 121 485 451
Interest on deposits with other financial institutions 6 70 33
Total interest income 44,191 39,168 37,451
INTEREST EXPENSE:
Interest on deposits (note 10) 18,412 16,229 16,786
Interest on securities sold under agreements
to repurchase 1,357 948 1,008
Interest on Federal Home Loan Bank advances 2,409 942 435
Interest on federal funds purchased 66 18 19
Interest on long-term debt (note 12) 329 278 378
Total interest expense 22,573 18,415 18,626
Net interest income 21,618 20,753 18,825
Provision for loan losses (note 7) 550 600 550
Net interest income after provision for loan losses 21,068 20,153 18,275
OTHER INCOME:
Trust revenues 2,010 1,912 1,746
Brokerage revenues 437 456 304
Service charges 2,592 2,317 1,919
Securities gains(losses), net (note 5) (3) 8 154
Mortgage banking income 383 624 1,121
Other 1,270 1,386 1,096
Total other income 6,689 6,703 6,340
OTHER EXPENSE:
Salaries and employee benefits (note 15) 10,104 9,616 8,645
Net occupancy expense 1,378 1,323 1,179
Equipment rentals, depreciation and maintenance 2,185 2,114 1,768
Federal deposit insurance premiums 100 104 107
Amortization of intangible assets (note 9) 1,190 1,024 764
Stationery and supplies 534 642 657
Legal and professional 941 1,232 920
Marketing and promotion 769 643 500
Other 2,861 2,689 2,579
Total other expense 20,062 19,387 17,119
Income before income taxes 7,695 7,469 7,496
Income taxes (note 17) 2,035 2,237 2,434
Net income $ 5,660 $ 5,232 $ 5,062
Per common share data:
Basic earnings per share $ 2.51 $ 2.40 $ 2.39
Diluted earnings per share 2.50 2.29 2.24
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 2000, 1999 and 1998
(In thousands, except share and per share data)
ACCUMULATED
ADDITIONAL OTHER
PREFERRED COMMON PAID-IN- RETAINED DEFERRED COMPREHENSIVE TREASURY
STOCK STOCK CAPITAL EARNINGS COMPENSATION INCOME(LOSS) STOCK TOTAL
DECEMBER 31, 1997 $ 3,100 $ 7,891 $ 7,038 $ 27,271 $ - $ 300 $ (24) $45,576
Comprehensive income:
Net income - - - 5,062 - - - 5,062
Net unrealized change in available-for-
sale investment securities - - - - - (39) - (39)
Total Comprehensive Income 5,023
Cash dividends on preferred stock ($462.50 per share) - - - (285) - - - (285)
Cash dividends on common stock ($.51 per share) - - - (1,023) - - - (1,023)
Issuance of 20,837 common shares pursuant
to the Dividend Reinvestment Plan - 83 666 - - - - 749
Issuance of 4,677 common shares pursuant
to the Deferred Compensation Plan - 19 150 - - - - 169
Issuance of 21,579 common shares pursuant
to the First Retirement & Savings Plan - 86 663 - - - - 749
Conversion of 6 preferred shares into 2,425 common shares (30) 10 20 - - - - -
Purchase of 13,539 treasury shares - - - - - - (507) (507)
Deferred compensation - - - - 950 - (950) -
Issuance of 1,000 common shares pursuant
to the exercise of stock options - 4 25 - - - - 29
December 31, 1998 3,070 8,093 8,562 31,025 950 261 (1,481) 50,480
Comprehensive income:
Net income - - - 5,232 - - - 5,232
Net unrealized change in available-for-
sale investment securities - - - - - (3,526) - (3,526)
Total Comprehensive Income 1,706
Cash dividends on preferred stock ($462.50 per share) - - - (232) - - - (232)
Cash dividends on common stock ($.55 per share) - - - (1,190) - - - (1,190)
Issuance of 21,023 common shares pursuant
to the Dividend Reinvestment Plan - 84 663 - - - - 747
Issuance of 5,820 common shares pursuant
to the Deferred Compensation Plan - 23 185 - - - - 208
Issuance of 3,275 common shares pursuant
to the First Retirement & Savings Plan - 13 105 - - - - 118
Conversion of 614 preferred shares into 248,177 common (3,070) 993 2,077 - - - - -
shares
Purchase of 9,696 treasury shares - - - - - - (337) (337)
Deferred compensation - - - - 173 - (173) -
Issuance of 500 common shares pursuant
to the exercise of stock options - 2 16 - - - - 18
December 31, 1999 $ - $ 9,208 $11,608 $ 34,835 $ 1,123 $ (3,265)$(1,991) $ 51,518
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (continued)
For the years ended December 31, 2000, 1999 and 1998
(In thousands, except share and per share data)
ACCUMULATED
ADDITIONAL OTHER
PREFERRED COMMON PAID-IN- RETAINED DEFERRED COMPREHENSIVE TREASURY
STOCK STOCK CAPITAL EARNINGS COMPENSATION INCOME(LOSS) STOCK TOTAL
December 31, 1999 $ - $ 9,208 $11,608 $ 34,835 $ 1,123 $ (3,265) $ (1,991) $ 51,518
Comprehensive income:
Net income - - - 5,660 - - - 5,660
Net unrealized change in available-for-
sale investment securities - - - - - 2,977 - 2,977
Total Comprehensive Income 8,637
Cash dividends on common
stock ($.59 per share) - - - (1,326) - - - (1,326)
Issuance of 21,444 common shares pursuant
to the Dividend Reinvestment Plan - 86 639 - - - - 725
Issuance of 1,070 common shares pursuant
to the Deferred Compensation Plan - 4 26 - - - - 30
Issuance of 430 common shares pursuant
to the First Retirement & Savings Plan - 2 10 - - - - 12
Purchase of 60,169 treasury shares - - - - - - (1,881) (1,881)
Deferred compensation - - - - 95 - (95) -
Issuance of 500 common shares pursuant
to the exercise of stock options - 2 10 - - - - 12
December 31, 2000 $ - $ 9,302 $12,293 $39,169 $ 1,218 $ (288) $(3,967) $57,727
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2000, 1999 and 1998
(In thousands) 2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,660 $ 5,232 $ 5,062
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 550 600 550
Depreciation, amortization and accretion, net 2,887 2,474 2,072
(Gain) loss on sale of securities, net 3 (8) (154)
(Gain) loss on sale of other real property owned, net 48 (70) 172
Gain on sale of mortgage loans held for sale, net (286) (552) (906)
Deferred income taxes (260) (293) (92)
Increase in accrued interest receivable (1,462) (191) (375)
Increase (decrease) in accrued interest payable 332 205 (138)
Origination of mortgage loans held for sale (14,220) (28,998) (76,000)
Proceeds from sale of mortgage loans held for sale 15,268 36,944 70,164
(Increase) decrease in other assets 1,828 (3,050) 1,626
Increase (decrease) in other liabilities (1,688) 2,687 (1,298)
Net cash provided by operating activities 8,660 14,980 683
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalization of mortgage servicing rights (189) (47) (78)
Purchases of premises and equipment (1,106) (2,731) (2,091)
Net (increase) decrease in loans (41,958) (37,055) 15,429
Proceeds from sales of:
Securities available-for-sale 607 721 10,485
Proceeds from maturities of:
Securities available-for-sale 10,229 34,275 63,718
Securities held-to-maturity 375 447 728
Purchases of:
Securities available-for-sale (4,817) (36,164) (111,174)
Securities held-to-maturity (1,794) (332) (799)
Purchase of financial organization, net of cash received -- 46,441 --
Net cash provided by (used in) investing activities (38,653) 5,555 (23,782)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 18,974 (28,938) (7,962)
Increase (decrease) in federal funds purchased (1,175) 1,175 --
Increase (decrease) in repurchase agreements (1,212) 6,290 15,238
Increase in short-term FHLB Advances 17,000 3,000 --
Repayment of long-term debt -- (1,375) (2,500)
Proceeds from issuance of long-term debt 1,800 -- 13,500
Proceeds from issuance of common stock 54 344 947
Purchase of treasury stock (1,881) (337) (507)
Dividends paid on preferred stock -- (110) (32)
Dividends paid on common stock (569) (514) (474)
Net cash provided by (used in) financing activities 32,991 (20,465) 18,210
Increase (decrease) in cash and cash equivalents 2,998 70 (4,889)
Cash and cash equivalents at beginning of year 21,842 21,772 26,661
Cash and cash equivalents at end of year $ 24,840 $ 21,842 $ 21,772
ADDITIONAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 22,241 $ 18,620 $ 18,488
Income taxes 2,417 2,539 2,918
Loans transferred to real estate owned 102 442 506
Dividends reinvested in common shares 724 748 749
See accompanying notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING AND CONSOLIDATION
The accompanying 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
intercompany balances and transactions have been eliminated in consolidation.
Certain amounts in the 1999 and 1998 consolidated financial statements have been
reclassified to conform with the 2000 presentation. The accounting and reporting
policies of the Company conform to accounting principles generally accepted in
the United States of America. The following is a description of the more
significant of these policies.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from these estimates.
CASH EQUIVALENTS
For purposes of reporting cash flows, cash equivalents include amounts due
from banks and federal funds sold. Generally, federal funds are sold for one-day
periods.
INVESTMENT SECURITIES
The Company classifies its debt securities into one or more of three
categories: held-to-maturity, available-for-sale, or trading. Held-to-maturity
securities are those which management has the positive intent and ability to
hold to maturity. Available-for-sale securities are those securities which
management may sell prior to maturity as a result of changes in interest rates,
prepayment factors, or as part of the Company's overall asset and liability
strategy. Trading securities are those securities bought and held principally
for the purpose of selling them in the near term.
Held-to-maturity securities are recorded at cost adjusted for amortization
of premiums and accretion of discounts to the earlier of the call date or
maturity date using the interest method.
Available-for-sale securities are recorded at fair value. Unrealized
holding gains and losses, net of the related income tax effect, are excluded
from income and reported as a separate component of stockholders' equity. If a
decrease in the fair value of a security is expected to be other than temporary,
then the security is written down to its fair value through a charge to income.
Realized gains and losses on the sale of investment securities are recorded
using the specific identification method.
LOANS
Loans are stated at the principal amount outstanding less unearned
discount, net of the allowance for loan losses. Interest on substantially all
loans is credited to income based on the principal amount outstanding.
The Company's policy is to generally 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
collectibility 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
collectibility of interest or principal.
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 which 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.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation
and amortization. Depreciation and amortization is determined principally by the
straight-line method over the estimated useful lives of the assets.
INTANGIBLE ASSETS
Intangible assets generally arise from business combinations which the
Company accounted for as purchases. Such assets consist of the excess of the
purchase price over the fair value of net assets acquired, with specific amounts
assigned to core deposit relationships of acquired businesses. Intangible assets
are amortized by the straight-line and accelerated methods over various periods
of up to twenty years. Management reviews intangible assets for possible
impairment when there is a significant event that detrimentally effects
operations.
PREFERRED STOCK
In connection with the Company's acquisition of Heartland Savings Bank
("Heartland") in 1992, $3.1 million of Series A perpetual, cumulative, non-
voting, convertible, preferred stock was issued to directors and certain senior
officers of the Company pursuant to a private placement. 620 shares of the
preferred stock were sold at a stated value of $5,000 per share with such shares
bearing a dividend rate of 9.25%. The preferred stock could be converted at any
time, at the option of the preferred stockholder, into common shares at the
conversion ratio of 404.2 shares of common stock for each share of preferred.
The Company also had the right, any time after July 1, 1998, and upon giving at
least thirty days prior notice, to redeem all (but not less than all) of the
preferred stock at a cash value of $5,000 per share plus any accrued but unpaid
dividends. The Company also had the right at any time after July 1, 1998, and
upon giving at least thirty days prior notice, to require the conversion of all
(but not less than all) of the preferred stock into common stock at the
conversion ratio. Effective November 15, 1999, the 614 remaining shares of
preferred stock were converted, at the election of the Company, into 248,177
shares of common stock.
MORTGAGE BANKING ACTIVITIES
First Mid Bank originates residential mortgage loans both for its portfolio
and for sale into the secondary market. Included in mortgage banking income are
gains or losses on the sale of loans and servicing fee income. Loans that are
originated and held for sale are carried at the lower of aggregate amortized
cost or fair value. Gains or losses from loan sales are computed using the
specific identification method and are included in mortgage banking income in
the Consolidated Statements of Income.
The Company recognizes as separate assets the rights to service mortgage
loans for others, however those rights are acquired. Originated Mortgage
Servicing Rights ("OMSRs") are amortized in proportion to and over the period of
estimated net servicing income.
For the year ended December 31, 2000 1999 1998
Capitalized mortgage servicing rights $189,000 $47,000 $78,000
Amortization expense $79,000 $62,000 $75,000
The balance of mortgage servicing rights was $256,000 and $199,000 at
December 31, 2000 and 1999, respectively, and the fair value of the servicing
rights approximates the net investment.
INCOME TAXES
The Company and its subsidiaries file consolidated Federal and State income
tax returns with each organization computing its taxes on a separate company
basis. Amounts provided for income tax expense are based on income reported for
financial statement purposes rather than amounts currently payable under tax
laws.
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to the temporary differences existing between the
financial statement carrying amounts of assets and liabilities and their
respective tax bases, as well as operating loss and tax credit carryforwards. To
the extent that current available evidence about the future raises doubt about
the realization of a deferred tax asset, a valuation allowance is established.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized as an increase or
decrease in income tax expense in the period such change is enacted.
TRUST DEPARTMENT ASSETS
Property held for customers in fiduciary or agency capacities is not
included in the accompanying consolidated balance sheets since such items are
not assets of the Company or its subsidiaries.
COMPREHENSIVE INCOME
The Company's comprehensive income for the years ended December 31, 2000,
1999 and 1998 is as follows (in thousands):
2000 1999 1998
Net income $ 5,660 $ 5,232 $ 5,062
Other comprehensive income:
Unrealized gains(losses) during the year 4,508 (5,334) 95
Reclassification adjustment for net
(gains)losses realized in net income 3 (8) (154)
Tax effect (1,534) 1,816 20
Comprehensive income $ 8,637 $ 1,706 $ 5,023
NOTE 2 - EARNINGS PER SHARE
The Company follows Financial Accounting Standards Board's Statement No.
128, "EARNINGS PER SHARE" ("SFAS 128") in which income for Basic Earnings per
Share ("EPS") is adjusted for dividends attributable to preferred stock 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 by the assumed conversion of the convertible preferred stock and the
assumed conversion of stock options, if not anti-dilutive.
The components of basic and diluted earnings per common share for the years
ended December 31, 2000, 1999, and 1998 are as follows:
2000 1999 1998
BASIC EARNINGS PER SHARE:
Net income $ 5,660,000 $ 5,232,000 $ 5,062,000
Less preferred stock dividends -- (304,000) (285,000)
Net income available to common stockholders $ 5,660,000 $ 4,928,000 $ 4,777,000
Weighted average common shares outstanding 2,257,407 2,055,905 1,999,767
Basic Earnings per Common Share $ 2.51 $ 2.40 $ 2.39
DILUTED EARNINGS PER SHARE:
Net income available to common stockholders $ 5,660,000 $ 4,928,000 $ 4,777,000
Assumed conversion of preferred stock -- 304,000 285,000
Net income available to common stock-
holders after assumed conversion $ 5,660,000 $ 5,232,000 $ 5,062,000
Weighted average common shares outstanding 2,257,407 2,055,905 1,999,767
Assumed conversion of stock options 5,279 7,493 8,149
Assumed conversion of preferred stock -- 216,901 249,122
Diluted weighted average common
shares outstanding 2,262,685 2,280,300 2,257,038
Diluted Earnings per Common Share $ 2.50 $ 2.29 $ 2.24
NOTE 3 - MERGERS AND ACQUISITIONs
On May 7, 1999, the Company acquired the Monticello, Taylorville and DeLand
branch offices and deposit base of Bank One Illinois, N.A. This cash acquisition
added approximately $64 million to total deposits, $10 million to loans, $1.7
million to premises and equipment and $6.5 million to intangible assets. This
acquisition was accounted for using the purchase method of accounting whereby
the acquired assets and deposits of the branches were recorded at their fair
values as of the acquisition date. The operating results have been combined with
those of the Company since May 7, 1999.
NOTE 4 - CASH AND DUE FROM BANKS
Aggregate cash and due from bank balances of $471,000 and $236,000 at
December 31, 2000 and 1999, were maintained in satisfaction of statutory reserve
requirements of the Federal Reserve Bank.
NOTE 5 - INVESTMENT SECURITIES
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 December 31, 2000 and 1999 were as follows (in thousands):
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
2000 COST GAINS LOSSES VALUE
Available-for-sale:
U.S. Treasury securities and obligations
of U.S. Government corporations and
agencies $ 89,202 $ 185 $ (707) $ 88,680
Obligations of states and political
subdivisions 27,677 248 (283) 27,642
Mortgage-backed securities 27,750 102 (144) 27,708
Federal Home Loan Bank stock 2,708 -- -- 2,708
Other securities 3,165 131 -- 3,296
Total available-for-sale $150,502 $ 666 $ (1,134) $150,034
Held-to-maturity:
Obligations of states and political
subdivisions $ 2,757 $ 43 $ -- $ 2,800
1999
Available-for-sale:
U.S. Treasury securities and obligations
of U.S. Government corporations and
agencies $ 91,180 $ -- $ (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
Proceeds from sales of investment securities and realized gains and losses
were as follows during the years ended December 31, 2000, 1999 and 1998 (in
thousands):
2000 1999 1998
Proceeds from sales $ 607 $ 721 $10,485
Gross gains 1 8 157
Gross losses 4 - 3
Maturities of investment securities were as follows at December 31, 2000
(in thousands). Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
AMORTIZED ESTIMATED
COST FAIR VALUE
Available-for-sale:
Due in one year or less $ 3,232 $ 3,230
Due after one-five years 76,652 76,209
Due after five-ten years 20,526 20,386
Due after ten years 22,342 22,501
122,752 122,326
Mortgage-backed securities 27,750 27,708
Total available-for-sale $150,502 $150,034
Held-to-maturity:
Due in one year or less $ 686 $ 687
Due after one-five years 635 647
Due after five-ten years 625 645
Due after ten-years 811 821
Total held-to-maturity $ 2,757 $ 2,800
Total investment securities $149,886 $149,461
Investment securities of approximately $131,654,000 and $124,368,000 at
December 31, 2000 and 1999 respectively, were pledged to secure public deposits
and repurchase agreements and for other purposes as permitted or required by
law.
NOTE 6 - LOANS
A summary of loans at December 31, 2000 and 1999 follows (in thousands):
2000 1999
Commercial, financial and agricultural $100,216 $ 89,194
Real estate-mortgage 299,252 273,293
Installment 28,865 24,659
Other 1,161 1,349
Total gross loans 429,494 388,495
Less unearned discount 206 176
Net loans $429,288 $388,319
The real estate mortgage loan balance in the above table includes loans
held for sale of $587,000 and $1,349,000 at December 31, 2000 and 1999,
respectively. Certain officers, directors and principal stockholders of the
Company and its subsidiaries, their immediate families or their affiliated
companies have loans with one or more of the subsidiaries. These loans are made
in the ordinary course of business on substantially the same terms, including
interest and collateral, as those prevailing for comparable transactions with
others and do not involve more than the normal risk of collectibility. Loans to
related parties totaled approximately $14,260,000 at December 31, 2000 and
$11,310,000 at December 31, 1999.
Activity during 2000 was as follows (in thousands):
Balance at December 31, 1999 $11,310
New loans 3,654
Loan repayments (704)
Balance at December 31, 2000 $14,260
The aggregate principal balances of nonaccrual, past due and renegotiated
loans were as follows at December 31, 2000 and 1999(in thousands):
2000 1999
Nonaccrual loans $2,982 $1,430
Loans past due ninety days or more and still accruing 245 366
Renegotiated loans which are performing
in accordance with revised terms 232 81
Interest income which would have been recorded under the original terms of
such nonaccrual or renegotiated loans totaled $154,000, $131,000 and $189,000 in
2000, 1999 and 1998, respectively. The amount of interest income which was
recorded amounted to $20,000 in 2000, $7,000 in 1999 and $7,000 in 1998.
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 renegotiated loans meet this definition. The
Company evaluates all individual loans on nonaccrual or renegotiated with a
balance over $100,000 for impairment. Impaired loans are measured by the Company
at the present value of expected future cash flows or, alternatively, if the
loan is collateral dependant, at the fair value of the collateral. Known losses
of principal on these loans have been charged off. Interest income on nonaccrual
loans is recognized only at the time cash is received. Interest income on
renegotiated loans is recorded according to the most recently agreed upon
contractual terms. The following table presents information on impaired loans
(in thousands).
At December 31, 2000 1999
Impaired loans for which an allowance has
been provided $ 202 $ --
Impaired loans for which no allowance has
been provided 2,780 1,427
Total loans determined to be impaired $2,982 $1,427
Allowance on impaired loans $ 68 $ --
For the year ended December 31, 2000 1999 1998
Average recorded investment in impaired loans $2,037 $1,692 $2,002
Cash basis interest income recognized from
impaired loans 20 7 7
First Mid Bank enters into financial instruments with off-balance sheet
risk to meet the financing needs of its customers. These financial instruments
include commitments to extend credit in accordance with line of credit
agreements and/or mortgage commitments and standby letters of credit. Standby
letters of credit are conditional commitments issued by a bank to guarantee the
performance of a customer to a third-party. First Mid Bank evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by First Mid Bank upon an extension of credit, is
based on management's evaluation of the credit worthiness of the borrower.
Collateral varies but generally includes assets such as property, equipment and
receivables. At December 31, 2000 and 1999, respectively, the Company had
$70,050,000 and $64,419,000 of outstanding commitments to extend credit and
$1,098,000 and $1,046,000 of standby letters of credit. Management does not
believe that any significant losses will be incurred in connection with such
instruments.
Most of the Company's business activities are with customers located within
east central Illinois. At December 31, 2000 and 1999, the Company's loan
portfolio included approximately $67,912,000 and $59,532,000, respectively, of
loans to borrowers directly related to the agricultural industry.
Mortgage loans serviced for others by First Mid Bank are not included in
the accompanying consolidated balance sheets. The unpaid principal balances of
these loans at December 31, 2000, 1999 and 1998 was approximately $55,729,000,
$51,905,000 and $55,452,000, respectively.
NOTE 7 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows during the three
year period ended December 31, 2000 (in thousands):
2000 1999 1998
Balance, beginning of year $ 2,939 $ 2,715 $ 2,636
Provision for loan losses 550 600 550
Acquired branches -- 150 --
Recoveries 60 100 84
Charge offs (287) (626) (555)
Balance, end of year $ 3,262 $ 2,939 $ 2,715
NOTE 8 - PREMISES AND EQUIPMENT, NET
Premises and equipment at December 31, 2000 and 1999 consisted of (in
thousands):
2000 1999
Land $ 2,981 $ 2,993
Buildings and improvements 12,797 12,574
Furniture and equipment 8,668 8,168
Leasehold improvements 382 356
Construction in progress 26 54
Subtotal 24,854 24,145
Accumulated depreciation and amortization 9,479 7,992
Total $15,375 $16,153
Depreciation expense was $1,884,000, $1,562,000 and $1,221,000 for the
years ended December 31, 2000, 1999 and 1998, respectively.
NOTE 9 - INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, at December 31, 2000
and 1999 consisted of (in thousands):
2000 1999
Excess of cost over fair market
value of acquired businesses $10,529 $11,369
Core deposit premiums 1,621 1,971
Total $12,150 $13,340
Amortization expense was $1,190,000, $1,024,000 and $764,000 for the years
ended December 31, 2000, 1999 and 1998, respectively.
NOTE 10 - DEPOSITS
As of December 31, 2000 and 1999, deposits consisted of (in thousands):
2000 1999
Demand deposits:
Non-interest bearing $ 66,646 $ 60,555
Interest bearing 113,388 105,076
Savings 36,080 40,294
Money market 47,408 51,945
Time deposits 240,463 227,141
Total deposits $503,985 $485,011
Total interest expense on deposits for the years ended December 31, 2000,
1999 and 1998 was as follows (in thousands):
2000 1999 1998
Interest-bearing demand $ 2,989 $ 2,230 $ 2,189
Savings 952 944 856
Money market 2,123 1,579 1,486
Time deposits 12,348 11,476 12,255
Total $18,412 $16,229 $16,786
As of December 31, 2000, 1999 and 1998, the aggregate amount of time
deposits in denominations of more than $100,000 and the total interest expense
on such deposits was as follows (in thousands):
2000 1999 1998
Outstanding $62,922 $43,921 $43,398
Interest expense for the year 2,738 2,079 2,397
The following table shows the amount of maturities for all time deposits as
of December 31, 2000 (in thousands):
less than 1 year $180,235
1 year to 2 years 42,832
2 years to 3 years 9,689
3 years to 4 years 3,357
over 4 years 4,350
total $240,463
NOTE 11 - OTHER BORROWINGS
As of December 31, 2000 and 1999 other borrowings consisted of (in
thousands):
2000 1999
Securities sold under agreements to repurchase $31,096 $32,308
Federal funds purchased -- 1,175
Federal Home Loan Bank advances:
Overnight advances (6.62% in 2000 and 4.74% in 1999) 20,000 3,000
Fixed term advances 20,300 18,500
Total $71,396 $54,983
The Federal Home Loan Bank fixed-term Advances at December 31, 2000 consist
of the following:
* $5 million advance at 6.16%, due March 20, 2005, one year call option
(callable on March 20, 2001)
* $2.3 million advance at 6.10%, due April 7, 2005, callable quarterly
after January, 2001
* $5 million advance at 6.12%, due September 6, 2005
* $5 million advance at 5.34%, due December 14, 2005.
The Federal Home Loan Bank fixed-term Advances at December 31, 2000 and
1999 consist of the following:
* $3 million advance at 6.58%, due October 10, 2002.
2000 1999 1998
Securities sold under agreements to repurchase:
Maximum outstanding at any month-end $34,546 $32,308 $26,018
Average amount outstanding for the year 24,576 22,063 9,717
First Mid Bank has collateral pledge agreements whereby it has agreed to
keep on hand at all time, free of all other pledges, liens, and encumbrances,
whole first mortgages on improved residential property with unpaid principal
balances aggregating no less than 167% of the outstanding advances from the
Federal Home Loan Bank. The securities underlying the repurchase agreements are
under the Company's control.
NOTE 12 - LONG-TERM DEBT
The Company had a long-term debt balance of $4,325,000 as of December 31,
2000 and 1999. This loan had a floating interest rate of 1.25% over the Federal
funds rate with interest due quarterly and an effective interest rate of 7.80%
in 2000 and 6.58% in 1999. No quarterly principal payments were paid during
2000. The loan is secured by all of the common stock of First Mid Bank. The
borrowing agreement contains requirements for the Company and First Mid Bank to
maintain various operating and capital ratios and also contains requirements for
prior lender approval for certain sales of assets, merger activity, the
acquisition or issuance of debt and the acquisition of treasury stock. Total
commitment amounts under the agreement and expiration periods were as follows:
Commitment Period
$5,000,000 1/1/01 - 12/31/01
$4,000,000 1/1/02 - 12/31/02
$3,000,000 1/1/03 - 12/31/03
The outstanding loan balance matures December 31, 2003. The Company and
First Mid Bank were in compliance with the existing covenants at December 31,
2000 and 1999.
NOTE 13 - REGULATORY CAPITAL
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 minimum amounts
and ratios (set forth in the table below) of total and Tier 1 capital to risk-
weighted assets, and of Tier 1 capital to average assets. Management believes,
as of December 31, 2000 and 1999, that all capital adequacy requirements have
been met.
As of December 31, 2000 and 1999, 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. At December
31, 2000, 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
DECEMBER 31, 2000
Total Capital
(to risk-weighted assets)
Company $ 49,111 11.74% $ 33,453 > 8.00% $ 41,816 > 10.00%
First Mid Bank 50,226 12.04 33,374 > 8.00 41,718 > 10.00
Tier 1 Capital
(to risk-weighted assets)
Company 45,849 10.96 16,727 > 4.00 25,090 > 6.00
First Mid Bank 46,964 11.26 16,687 > 4.00 25,031 > 6.00
Tier 1 Capital
(to average assets)
Company 45,849 7.32 25,070 > 4.00 31,338 > 5.00
First Mid Bank 46,964 7.54 24,931 > 4.00 31,163 > 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
NOTE 14 - DISCLOSURE OF FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 "DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS," ("SFAS 107"), requires the disclosure of the
estimated fair value of financial instrument assets and liabilities. For the
Company, as for most financial institutions, most of the assets and liabilities
are considered financial instruments as defined in SFAS 107. However, many of
the Company's financial instruments lack an available trading market as
characterized by a willing buyer and seller engaging in an exchange transaction.
Additionally, the Company's general practice and intent is to hold its financial
instruments until maturity and not to engage in trading or sales activity.
Accordingly, significant assumptions and estimations as well as present value
calculations were used by the Company for purposes of the SFAS 107 disclosure.
Future changes in these assumptions or methodologies may have a material effect
on estimated fair values.
Estimated fair values have been determined by the Company using the best
available information and an estimation methodology suitable for each category
of financial instrument. The estimation methodology used, the estimated fair
values and the carrying amount at December 31, 2000 and 1999 were as follows (in
thousands):
Financial instruments for which an active secondary market exists have been
valued using quoted available market prices.
2000 1999
FAIR CARRYING FAIR CARRYING
VALUE AMOUNT VALUE AMOUNT
Cash and cash equivalents $ 24,840 $ 24,840 $ 21,842 $ 21,842
Investments available-for-sale 150,034 150,034 150,157 150,157
Investments held-to-maturity 2,757 2,800 2,132 2,077
Financial instrument liabilities with stated maturities and other
borrowings have been valued at present value, using a discount rate
approximating current market rates for similar assets and liabilities.
2000 1999
FAIR CARRYING FAIR CARRYING
VALUE AMOUNT VALUE AMOUNT
Deposits with stated maturities $240,349 $240,463 $226,339 $227,141
Securities sold under agreements
to repurchase 30,954 31,096 32,243 32,308
Federal Home Loan Bank advances 39,767 40,300 21,437 21,500
Financial instrument liabilities without stated maturities and floating
rate long-term debt have estimated fair values equal to both the amount payable
on demand and the carrying amount.
2000 1999
FAIR CARRYING FAIR CARRYING
VALUE AMOUNT VALUE AMOUNT
Deposits with no stated maturity $263,522 $263,522 $257,870 $257,870
Federal funds purchased -- -- 1,175 1,175
Floating rate long-term debt 4,325 4,325 4,325 4,325
For loans with floating interest rates, it is assumed that the estimated
fair values generally approximate the carrying amount balances. Fixed rate 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.
2000 1999
FAIR CARRYING FAIR CARRYING
VALUE AMOUNT VALUE AMOUNT
Net loan portfolio $423,952 $426,026 $380,203 $385,380
The notional amount of off-balance sheet items such as unfunded loan
commitments and stand-by letters of credit generally approximate their estimated
fair values.
NOTE 15 - RETIREMENT PLAN
The Company has a defined contribution retirement plan which covers
substantially all employees and which provides for base contributions of 4% of
compensation and a matching contribution by the Company of up to 50% of the
first 4% of voluntary employee contributions. Employee contributions are limited
to 15% of compensation. The total expense for the plan amounted to $413,000,
$405,000 and $369,000 in 2000, 1999 and 1998, respectively. The Company has an
agreement in place to pay $50,000 annually for 20 years from the retirement date
to a retired senior officer of the Company.
NOTE 16 - STOCK OPTION PLAN
The Company established a Stock Incentive Plan ("SI Plan") 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
the SI 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.
A summary of the status of stock options under the SI plan at December 31,
2000, 1999 and 1998 and changes during the years then ended are presented in the
following table:
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
Outstanding at December 31, 1997 31,000 $ 27.30
Granted 11,500 35.00
Exercised (1,000) 28.62
Outstanding at December 31, 1998 41,500 $ 29.40
Granted 9,500 34.50
Canceled (4,500) 32.02
Exercised (500) 35.00
Outstanding at December 31, 1999 46,000 $ 30.14
Granted 22,500 29.08
Canceled (5,000) 31.07
Exercised (500) 23.51
Outstanding at December 31, 2000 63,000 $ 29.74
The Company applies APB Opinion No. 25 in accounting for the SI Plan and,
accordingly, compensation cost based on fair value at grant date has not been
recognized for its stock options in the consolidated financial statements. The
Company has presented pro forma compensation cost based on the fair value at
grant date for its stock options under Statement of Financial Accounting
Standards No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION" in the following
table (in thousands, except per share date):
For the years ended December 31,
2000 1999 1998
Net income:
As reported $ 5,660 $ 5,232 $ 5,062
Pro forma 5,656 5,228 5,030
Basic Earnings Per Share:
As reported $ 2.51 $ 2.40 $ 2.39
Pro forma $ 2.51 $ 2.39 $ 2.37
Diluted Earnings Per Share:
As reported $ 2.50 $ 2.29 $ 2.24
Pro forma $ 2.50 $ 2.29 $ 2.23
The fair value of options granted is estimated on the grant date using the
Black-Scholes option- pricing model. The following assumptions were used in
estimating the fair value for options granted in 2000, 1999 and 1998.
2000 1999 1998
Dividend yield 1.9% 1.6% 1.3%
Risk free interest rate 5.12% 6.93% 5.25%
Weighted average expected life 8.6 yrs 9.3 yrs 6.5 yrs
Expected volatility 14% 13% 20%
The weighted average per share fair values of options granted in 2000, 1999
and 1998 was $12.48, $13.47 and $9.22, respectively.
NOTE 17 - INCOME TAXES
The components of Federal and State income tax expense (benefit) for the
years ended December 31, 2000, 1999 and 1998 were as follows (in thousands):
2000 1999 1998
Current
Federal $ 2,197 $ 2,386 $ 2,369
State 98 144 157
Total Current 2,295 2,530 2,926
Deferred
Federal (227) (267) (81)
State (33) (26) (11)
Total Deferred (260) (293) (92)
Total $ 2,035 $ 2,237 $ 2,434
Recorded income tax expense differs from the expected tax expense (computed
by applying the applicable statutory U.S. Federal tax rate of 34% to income
before income taxes). The principal reasons for this difference are as follows
(in thousands):
2000 1999 1998
Expected income taxes $ 2,616 $ 2,539 $ 2,549
Effects of:
Tax-exempt income (595) (562) (348)
Nondeductible interest expense 87 70 38
Goodwill amortization 120 120 120
State deduction, net of federal taxes 43 78 96
Donation of property (197) -- --
Other items, net (39) (8) (21)
Total $ 2,035 $ 2,237 $ 2,434
The tax effects of the temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
2000 and 1999 are presented below (in thousands):
2000 1999
Deferred tax assets:
Allowance for loan losses $1,230 $1,088
Available-for-sale investment securities 180 2,065
Deferred compensation 398 361
Other, net 327 177
Total gross deferred tax assets $2,135 $3,691
Deferred tax liabilities:
Depreciation $ 362 $ 558
Purchase accounting 185 13
Other, net 193 100
Total gross deferred tax liabilities $ 740 $ 671
Net deferred tax assets $1,395 $3,020
Deferred tax assets and deferred tax liabilities are recorded in other
assets and other liabilities, respectively, on the consolidated balance sheets.
No valuation allowance related to deferred tax assets has been recorded at
December 31, 2000 and 1999 as management believes it is more likely than not
that the deferred tax assets will be fully realized.
NOTE 18 - DIVIDEND RESTRICTIONS
Banking regulations impose restrictions on the ability of First Mid Bank to
pay dividends to the Company. At December 31, 2000, regulatory approval would
have been required for aggregate dividends from First Mid Bank to the Company in
excess of approximately $7.3 million. The amount of such dividends that could be
paid is further restricted by the limitations of sound and prudent banking
principles.
NOTE 19 - COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, there are various outstanding commitments
and contingent liabilities such as guarantees, commitments to extend credit,
claims and legal actions which are not reflected in the accompanying
consolidated financial statements. In the opinion of management, no significant
losses are anticipated as a result of these matters.
NOTE 20 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
Presented below are condensed balance sheets, statements of income and cash
flows for the Parent Company (in thousands):
FIRST MID-ILLINOIS BANCSHARES, INC. (PARENT COMPANY)
BALANCE SHEETS:
December 31, 2000 1999
Assets
Cash $ 745 $ 823
Premises and equipment, net 4 8
Investment in subsidiaries 59,345 53,222
Other assets 2,729 2,563
Total Assets $62,823 $56,616
Liabilities and Stockholders' equity
Liabilities
Dividends payable $ 717 $ 684
Long-term debt 4,325 4,325
Other liabilities 54 89
Total Liabilities 5,096 5,098
Stockholders' equity 57,727 51,518
Total Liabilities and Stockholders' equity $62,823 $56,616
FIRST MID-ILLINOIS BANCSHARES, INC. (PARENT COMPANY)
STATEMENTS OF INCOME:
YEARS ENDED DECEMBER 31, 2000 1999 1998
Income:
Dividends from subsidiaries $2,813 $1,875 $1,875
Other income 96 155 111
2,909 2,030 1,986
Operating expenses 1,053 1,323 1,203
Income before income taxes and equity
in undistributed earnings of subsidiaries 1,856 707 783
Income tax benefit 371 471 454
Income before equity in undistributed
earnings of subsidiaries 2,227 1,178 1,237
Equity in undistributed earnings of subsidiaries 3,433 4,054 3,825
Net income $5,660 $5,232 $5,062
FIRST MID-ILLINOIS BANCSHARES, INC. (PARENT COMPANY)
STATEMENTS OF CASH FLOWS:
YEARS ENDED DECEMBER 31, 2000 1999 1998
Cash flows from operating activities:
Net income $ 5,660 $ 5,232 $ 5,062
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization, accretion, net 4 4 7
Equity in undistributed earnings of
subsidiaries (3,433) (4,054) (3,825)
(Increase) decrease in other assets 121 (533) 910
Increase (decrease) in other liabilities (34) 45 (522)
Net cash provided by operating activities 2,318 694 1,632
Cash flows from financing activities:
Repayment of long-term debt -- (375) (1,500)
Proceeds from issuance of common stock 54 344 947
Purchase of treasury stock (1,881) (337) (507)
Dividends paid on preferred stock -- (110) (32)
Dividends paid on common stock (569) (514) (474)
Net cash used in financing activities (2,396) (992) (1,566)
Increase (decrease) in cash (78) (298) 66
Cash at beginning of year 823 1,121 1,055
Cash at end of year $ 745 $ 823 $ 1,121
STATEMENT OF RESPONSIBILITY FOR FINANCIAL DATA
Management is responsible for the integrity of all the financial data
included in this Annual Report. The financial statements and related notes are
prepared in accordance with accounting principles generally accepted in the
United States of America. Financial information elsewhere in this Report is
consistent with that in the financial statements.
Management maintains a system of internal accounting control, including an
internal audit program, which provides reasonable assurance that assets are
safeguarded against loss from unauthorized use or disposition, transactions are
properly authorized and accounting records are reliable for the preparation of
financial statements. The foundation of the system of internal accounting
control rests upon careful selection and training of personnel, segregation of
responsibilities and application of formal policies and procedures that are
consistent with the highest standards of business conduct. The system of
internal accounting control is being continuously modified and improved in
response to changes in business conditions and operations.
The board of directors has an audit committee comprised of six outside
directors. The Committee meets periodically with the independent auditors, the
internal auditors and management to ensure that the system of internal
accounting control is being properly administered and that financial data is
being properly reported. The committee reviews the scope and timing of both the
internal and external audits, including recommendations made with respect to the
system of internal accounting control by the independent auditors.
The consolidated financial statements, as identified in the accompanying
Independent Auditors' Report, have been audited by KPMG LLP, independent
certified public accountants. The audits were conducted in accordance with
auditing standards generally accepted in the United States of America, which
included tests of the accounting records and other auditing procedures
considered necessary to formulate an opinion as to the fairness, in all material
respects, of the consolidated financial statements.
William S. Rowland Michael L. Taylor
Chairman and Chief Chief Financial Officer
Executive Officer
INDEPENDENT AUDITORS' REPORT
The Board of Directors
First Mid-Illinois Bancshares, Inc.
Mattoon, Illinois:
We have audited the accompanying consolidated balance sheets of First Mid-
Illinois Bancshares, Inc. and subsidiaries as of December 31, 2000 and 1999, and
the related consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the years in the three-year period ended December 31,
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Mid-Illinois Bancshares, Inc. and subsidiaries as of December 31, 2000 and 1999,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
Chicago, Illinois
January 26, 2001
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information called for by Item 10 with respect to directors and
director nominees is incorporated by reference to the Company's 2001 Proxy
Statement under the caption "Proposal 1 - Election of Directors."
The information called for by Item 10 with respect to executive officers is
incorporated by reference to Part I hereof under the caption "Supplemental Item
- - Executive Officers of the Company."
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 11 is incorporated by reference to the
Company's 2001 Proxy Statement under the caption "Executive Compensation,"
"Common Stock Price Performance Graph" and "Directors' Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by Item 12 is incorporated by reference to the
Company's 2001 Proxy Statement under the caption "Voting Securities and
Principal Holders Thereof."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Item 13 is incorporated by reference to the
Company's 2001 Proxy Statement under the caption "Transactions with Management."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) and (2) -- Financial Statements and Financial Statement Schedules
The following consolidated financial statements and financial statement
schedules of the Company are filed as part of this document under Item 8.
Financial Statements and Supplementary Data:
* Consolidated Balance Sheets -- December 31, 2000 and 1999
* Consolidated Statements of Income -- For the Years Ended December 31,
2000, 1999 and 1998
* Consolidated Statements of Changes in Stockholders' Equity -- For the
Years Ended December 31, 2000, 1999 and 1998
* Consolidated Statements of Cash Flows -- For the Years Ended December
31, 2000, 1999 and 1998.
(a)(3) -- 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
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 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)
Dated: MARCH 27, 2001 By: /s/ William S. Rowland
William S. Rowland
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 27{th} day of March, 2001, by the following
persons on behalf of the Company and in the capacities listed.
SIGNATURE AND TITLE
/s/ William S. Rowland
William S. Rowland, Chairman of the Board, President and Chief Executive
Officer and Director
/s/ Michael L. Taylor
Michael L. Taylor, Vice President and Chief Financial Officer
/s/ Charles A. Adams
Charles A. Adams, Director
/s/ Kenneth R. Diepholz
Kenneth R. Diepholz, Director
/s/ Steven L. Grissom
Steven L. Grissom, Director
/s/ Richard A. Lumpkin
Richard A. Lumpkin, Director
/s/ Daniel E. Marvin, Jr.
Daniel E. Marvin, Jr., Director
/s/ Gary W. Melvin
Gary W. Melvin, Director
/s/ Sara Jane Preston
Sara Jane Preston, Director
/s/ Ray A. Sparks
Ray A. Sparks, Director
EXHIBIT INDEX TO FORM 10-K REGISTRATION STATEMENT
EXHIBIT
NUMBER DESCRIPTION AND FILING OR INCORPORATION REFERENCE
3.1 RESTATED CERTIFICATE OF INCORPORATION AND AMENDMENT TO RESTATED
CERTIFICATE OF INCORPORATION OF FIRST MID-ILLINOIS BANCSHARES, INC.
Incorporated by reference to Exhibit 3(a) to First Mid-Illinois
Bancshares, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1987 (File No. 0-13688)
3.2 RESTATED BYLAWS OF FIRST MID-ILLINOIS BANCSHARES, INC.
Incorporated by reference to Exhibit 3(b) to First Mid-Illinois
Bancshares, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1987 (File No 0-13368)
4.1 RIGHTS AGREEMENT, DATED AS OF SEPTEMBER 21, 1999, BETWEEN FIRST
MID-ILLINOIS BANCSHARES, INC. AND HARRIS TRUST AND SAVINGS BANK,
AS RIGHTS AGENT
Incorporated by reference to Exhibit 4.1 to First Mid-Illinois
Bancshares, Inc.'s Registration Statement on Form 8-A filed with
the SEC on September 22, 1999
10.1 EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND WILLIAM S. ROWLAND
Incorporated by reference to Exhibit 10.1 to First Mid-Illinois
Bancshares, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1999 (File No 0-13368)
10.2 EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND JOHN W. HEDGES
Incorporated by reference to Exhibit 10.2 to First Mid-Illinois
Bancshares, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1999 (File No 0-13368)
10.3 DEFERRED COMPENSATION PLAN
Incorporated by reference to Exhibit 10.4 to First Mid-Illinois
Bancshares, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1998 (File No 0-13368)
10.4 1997 STOCK INCENTIVE PLAN
Incorporated by reference to Exhibit 10.5 to First Mid-Illinois
Bancshares, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1998 (File No 0-13368)
10.5 EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND ROBERT J. SWIFT, JR.
(Filed herewith)
11.1 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(Filed herewith)
21.1 SUBSIDIARIES OF THE COMPANY
(Filed herewith)
23.1 CONSENT OF KPMG LLP
(Filed herewith)
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into this
24th day of July, 2000, by and between First Mid-Illinois Bancshares, Inc. ("the
Company"), a corporation with its principal place of business located in
Mattoon, Illinois, and Robert J. Swift, Jr. ("Executive").
In consideration of the promises and mutual covenants and agreements
contained herein, the parties hereto acknowledge and agree as follows:
ARTICLE ONE
TERM AND NATURE OF AGREEMENT
1.01 TERM OF AGREEMENT. The term of this Agreement shall commence on August
14, 2000 and shall continue for three years, until August 14, 2003. Thereafter,
unless Executive's employment with the Company has been previously terminated,
Executive shall continue his employment with the Company on an at will basis
and, except as provided in Articles Five, Six and Seven, this Agreement shall
terminate unless extended by mutual written agreement.
1.02 EMPLOYMENT. The Company agrees to employ Executive as its Executive
Vice President commencing August 14, 2000 and Executive accepts such employment
by the Company on the terms and conditions herein set forth. The duties of
Executive shall be determined by the Company's Board of Directors and Executive
shall adhere to the policies and procedures of the Company and shall follow the
supervision and direction of the Board in the performance of such duties. During
the term of his employment, Executive agrees to devote his full working time,
attention and energies to the diligent and satisfactory performance of his
duties hereunder. Executive shall not, while he is employed by the Company,
engage in any activity which would (a) interfere with, or have an adverse effect
on, the reputation, goodwill or any business relationship of the Company or any
of its subsidiaries; (b) result in economic harm to the Company or any of its
subsidiaries; or (c) result in a breach of Section Six of the Agreement.
ARTICLE TWO
COMPENSATION AND BENEFITS
While Executive is employed with the Company during the term of this
Agreement, the Company shall provide Executive with the following compensation
and benefits:
2.01 BASE SALARY. The Company shall pay Executive an annual base salary of
$120,000.00 per fiscal year, payable in accordance with the Company's customary
payroll practices for executive employees. The Board may review and adjust
Executive's base salary from year to year; provided, however, that during the
term of Executive's employment, the Company shall not decrease Executive's base
salary.
2.02 INCENTIVE COMPENSATION PLAN. Executive shall continue to participate
in the First Mid-Illinois Bancshares, Inc. Incentive Compensation Plan in
accordance with the terms and conditions of such Plan. Pursuant to the Plan,
Executive shall have an opportunity to receive incentive compensation of up to a
maximum of 25% of Executive's annual base salary. The incentive compensation
payable for a particular fiscal year will be based upon the attainment of the
performance goals in effect under the Plan for such year and will be paid in
accordance with the terms of the Plan and at the sole discretion of the Board.
2.03 DEFERRED COMPENSATION PLAN. Executive shall be eligible to participate
in the First Mid-Illinois Bancshares, Inc. Deferred Compensation Plan in
accordance with the terms and conditions of such Plan.
2.04 VACATION. Executive shall be entitled to three (3) weeks of paid
vacation each year during the term of this Agreement. 2.05 FRINGE BENEFITS. The
Company shall provide the following additional fringe benefits to Executive:
(a) Use of a Company-owned or leased vehicle for professional and personal
use.
(b) An amount equal to the annual dues for a Class "H" membership at the
Mattoon Golf and Country Club.
(c) Use of a cellular phone for work-related calls and calls associated
with Internet connection for Executive's home.
2.06 OTHER BENEFITS. Executive shall be eligible (to the extent he
qualifies) to participate in any other retirement, health, accident and
disability insurance, or similar employee benefit plans as may be maintained
from time to time by the Company for its other executives or employees subject
to and on a consistent basis with the terms, conditions and overall
administration of such plans.
2.07 BUSINESS EXPENSES. Executive shall be entitled to reimbursement by the
Company for all reasonable expenses actually and necessarily incurred by him on
its behalf in the course of his employment hereunder and in accordance with
expense reimbursement plans and policies of the Company from time to time in
effect for executive employees.
2.08 WITHHOLDING. All salary, incentive compensation and other benefits
provided to Executive pursuant to this Agreement shall be subject to withholding
for federal, state or local taxes, amounts withheld under applicable employee
benefit plans, policies or programs, and any other amounts that may be required
to be withheld by law, judicial order or otherwise or by agreement with, or
consent of, Executive.
ARTICLE THREE
DEATH OF EXECUTIVE
This Agreement shall terminate prior to the end of the term described in
Section 1.01 upon Executive's termination of employment with the Company due to
his death. Upon Executive's termination due to death, the Company shall pay
Executive's estate the amount of Executive's base salary and his accrued but
unused vacation time earned through the date of such death and any incentive
compensation earned for the preceding fiscal year that is not yet paid as of the
date of such death.
ARTICLE FOUR
TERMINATION OF EMPLOYMENT
Executive's employment with the Company may be terminated by Executive or
by the Company at any time for any reason. Upon Executive's termination of
employment prior to the end of the term of the Agreement, the Company shall pay
Executive as follows:
4.01 TERMINATION BY THE COMPANY FOR OTHER THAN CAUSE. If the Company
terminates Executive's employment for any reason other than Cause, the Company
shall pay Executive the following:
(a) An amount equal to Executive's monthly base salary in effect at the
time of such termination of employment for a period of twelve (12)
months thereafter. Such amount shall be paid to Executive periodically
in accordance with the Company's customary payroll practices for
executive employees.
(b) The base salary and accrued but unused paid vacation time earned
through the date of termination and any incentive compensation earned
for the preceding fiscal year that is not yet paid.
(c) Continued coverage for Executive and/or Executive's family under the
Company's health plan pursuant to Title I, Part 6 of the Employee
Retirement Income Security Act of 1974 ("COBRA") and for such purpose
the date of Executive's termination of employment shall be considered
the date of the "qualifying event" as such term is defined by COBRA.
During the twelve month period beginning on the date of such
termination, the Executive shall be charged for such coverage in the
amount that he would have paid for such coverage had he remained
employed by the Company, and for the duration of the COBRA period, the
Executive shall be charged for such coverage in accordance with the
provisions of COBRA.
For purposes of this Agreement, "Cause" shall mean Executive's (i)
conviction in a court of law of (or entering a plea of guilty or no contest to)
any crime or offense involving fraud, dishonesty or breach of trust or involving
a felony; (ii) performance of any act which, if known to the customers, clients,
stockholders or regulators of the Company, would materially and adversely impact
the business of the Company; (iii) act or omission that causes a regulatory body
with jurisdiction over the Company to demand, request, or recommend that
Executive be suspended or removed from any position in which Executive serves
with the Company; (iv) substantial nonperformance of any of his obligations
under this Agreement; (v) misappropriation of or intentional material damage to
the property or business of the Company or any affiliate; or (vi) breach of
Article Five or Six of this Agreement.
4.02 TERMINATION FOLLOWING A CHANGE IN CONTROL. Notwithstanding Section
4.01, if, following a Change in Control, Executive's employment is terminated by
the Company (or any successor thereto) for any reason other than Cause, or if
Executive terminates his employment because of a decrease in his then current
base salary or a substantial diminution in his position and responsibilities,
the Company (or any successor thereto) shall pay Executive the following:
(a) The Executive's annual base salary in effect at the time of such
termination. Such amount shall be paid, at Executive's election, in
either a lump sum payment as soon as practicable following the date of
such termination or periodically in accordance with the Company's or
successor's customary payroll practices for executive employees.
(b) An amount equal to the incentive compensation earned by or paid to
Executive for the fiscal year immediately preceding the year in which
Executive's termination of employment occurs. Such amount shall be
paid to Executive in a lump sum as soon as practicable after the date
of his termination.
(c) The base salary and accrued but unused paid vacation time earned
through the date of termination and any incentive compensation earned
for the preceding fiscal year that is not yet paid.
(d) Continued coverage for Executive and/or Executive's family under the
Company's health plan pursuant to Title I, Part 6 of the Employee
Retirement Income Security Act of 1974 ("COBRA") and for such purpose
the date of Executive's termination of employment shall be considered
the date of the "qualifying event" as such term is defined by COBRA.
During the twelve month period beginning on the date of such
termination, the Executive shall be charged for such coverage in the
amount that he would have paid for such coverage had he remained
employed by the Company, and for the duration of the COBRA period, the
Executive shall be charged for such coverage in accordance with the
provisions of COBRA.
For purposes of this Agreement, "Change in Control" shall have the meaning
as set forth in the First Mid-Illinois Bancshares, Inc. 1997 Stock Incentive
Plan.
4.03 OTHER TERMINATION OF EMPLOYMENT. If the Company terminates Executive's
employment for Cause, or if Executive terminates his employment for any reason
other than as described in Section 4.02 above, the Company shall pay Executive
the base salary and accrued but unused paid vacation time earned through the
date of such termination and any incentive compensation earned for the preceding
fiscal year that is not yet paid.
ARTICLE FIVE
CONFIDENTIAL INFORMATION
5.01 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. During his employment with
the Company, and after his termination of such employment with the Company,
Executive shall not, in any form or manner, directly or indirectly, use,
divulge, disclose or communicate to any person, entity, firm, corporation or any
other third party, any Confidential Information, except as required in the
performance of Executive's duties hereunder, as required by law or as necessary
in conjunction with legal proceedings.
5.02 DEFINITION OF CONFIDENTIAL INFORMATION. For the purposes of this
Agreement, the term "Confidential Information" shall mean any and all
information either developed by Executive during his employment with the Company
and used by the Company or its affiliates or developed by or for the Company or
its affiliates of which Executive gained knowledge by reason of his employment
with the Company that is not readily available in or known to the general public
or the industry in which the Company or any affiliate is or becomes engaged.
Such Confidential Information shall include, but shall not be limited to, any
technical or non-technical data, formulae, compilations, programs, devices,
methods, techniques, procedures, manuals, financial data, business plans, lists
of actual or potential customers, lists of employees and any information
regarding the Company's or any affiliate's products, marketing or database. The
Company and Executive acknowledge and agree that such Confidential Information
is extremely valuable to the Company and may constitute trade secret information
under applicable law. In the event that any part of the Confidential Information
becomes generally known to the public through legitimate origins (other than by
the breach of this Agreement by Executive or by other misappropriation of the
Confidential Information), that part of the Confidential Information shall no
longer be deemed Confidential Information for the purposes of this Agreement,
but Executive shall continue to be bound by the terms of this Agreement as to
all other Confidential Information.
5.03 DELIVERY UPON TERMINATION. Upon termination of Executive's employment
with the Company for any reason, Executive shall promptly deliver to the Company
all correspondence, files, manuals, letters, notes, notebooks, reports,
programs, plans, proposals, financial documents, and any other documents or data
concerning the Company's or any affiliate's customers, database, business plan,
marketing strategies, processes or other materials which contain Confidential
Information, together with all other property of the Company or any affiliate in
Executive's possession, custody or control.
ARTICLE SIX
NON-COMPETE AND NON-SOLICITATION COVENANTS
6.01 COVENANT NOT TO COMPETE. During the term of this Agreement and for a
period of two years following the later of (i) the termination of Executive's
employment for any reason or (ii) the last day of the term of the Agreement,
Executive shall not, on behalf of himself or on behalf of another person,
corporation, partnership, trust or other entity, within the counties of Coles,
Moultrie, Douglas, Cumberland, Effingham, Champaign, Christian, Macon or Piatt,
Illinois, or any other county in which the Company or any affiliate conducts
business:
(a) Directly or indirectly own, manage, operate, control, participate in
the ownership, management, operation or control of, be connected with
or have any financial interest in, or serve as an officer, employee,
advisor, consultant, agent or otherwise to any person, firm,
partnership, corporation, trust or other entity which owns or operates
a business similar to that of the Company or its affiliates.
(b) Solicit for sale, represent, and/or sell Competing Products to any
person or entity who or which was the Company's customer or client
during the last two years of Executive's employment. "Competing
Products," for purposes of this Agreement, means products or services
which are similar to, compete with, or can be used for the same
purposes as products or services sold or offered for sale by the
Company or any affiliate or which were in development by the Company
or any affiliate within the last two years of Executive's employment.
6.02 COVENANT NOT TO SOLICIT. For a period of two years following the later
of (i) the termination of Executive's employment for any reason or (ii) the last
day of the term of this Agreement, Executive shall not:
(a) Attempt in any manner to solicit from any client or customer business
of the type performed by the Company or any affiliate or persuade any
client or customer of the Company or any affiliate to cease to do such
business or to reduce the amount of such business which any such
client or customer has customarily done or contemplates doing with the
Company or any affiliate, whether or not the relationship between the
Company or affiliate and such client or customer was originally
established in whole or in part through Executive's efforts.
(b) Render any services of the type rendered by the Company or any
affiliate for any client or customer of the Company.
(c) Solicit or encourage, or assist any other person to solicit or
encourage, any employees, agents or representatives of the Company or
an affiliate to terminate or alter their relationship with the Company
or any affiliate.
(d) Do or cause to be done, directly or indirectly, any acts which may
impair the relationship between the Company or any affiliate with
their respective clients, customers or employees.
ARTICLE SEVEN
REMEDIES
Executive acknowledges that compliance with the provisions of Articles Five
and Six herein is necessary to protect the business, goodwill and proprietary
information of the Company and that a breach of these covenants will irreparably
and continually damage the Company for which money damages may not be
inadequate. Consequently, Executive agrees that, in the event that he breaches
or threatens to breach any of these provisions, the Company shall be entitled to
both (a) a temporary, preliminary or permanent injunction in order to prevent
the continuation of such harm; and (b) money damages insofar as they can be
determined. In addition, the Company will cease payment of all compensation and
benefits under Articles Three and Four hereof. In the event that any of the
provisions, covenants, warranties or agreements in this Agreement are held to be
in any respect an unreasonable restriction upon the Executive or are otherwise
invalid, for whatsoever cause, then the court so holding shall reduce, and is so
authorized to reduce, the territory to which it pertains and/or the period of
time in which it operates, or the scope of activity to which it pertains or
effect any other change to the extent necessary to render any of the
restrictions of this Agreement enforceable.
ARTICLE EIGHT
MISCELLANEOUS
8.01 SUCCESSORS AND ASSIGNABILITY.
(a) No rights or obligations of the Company under this Agreement may be
assigned or transferred except that the Company will require any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had
taken place.
(b) No rights or obligations of Executive under this Agreement may be
assigned or transferred by Executive other than his rights to payments
or benefits hereunder which may be transferred only by will or the
laws of descent and distribution.
8.02 ENTIRE AGREEMENT. This Agreement contains the entire agreement between
the parties with respect to the subject matter hereof and may not be modified
except in writing by the parties hereto. Furthermore, the parties hereto
specifically agree that all prior agreements, whether written or oral, relating
to Executive's employment by the Company shall be of no further force or effect
from and after the date hereof.
8.03 SEVERABILITY. If any phrase, clause or provision of this Agreement is
deemed invalid or unenforceable, such phrase, clause or provision shall be
deemed severed from this Agreement, but will not affect any other provisions of
this Agreement, which shall otherwise remain in full force and effect. If any
restriction or limitation in this Agreement is deemed to be unreasonable,
onerous or unduly restrictive, it shall not be stricken in its entirety and held
totally void and unenforceable, but shall be deemed rewritten and shall remain
effective to the maximum extent permissible within reasonable bounds.
8.04 CONTROLLING LAW AND JURISDICTION. This Agreement shall be governed by
and interpreted and construed according to the laws of the State of Illinois.
The parties hereby consent to the jurisdiction of the state and federal courts
in the State of Illinois in the event that any disputes arise under this
Agreement.
8.05 NOTICES. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given
(a) on the date of service if served personally on the party to whom notice is
to be given; (b) on the day after delivery to an overnight courier service; (c)
on the day of transmission if sent via facsimile to the facsimile number given
below; or (d) on the third day after mailing, if mailed to the party to whom
notice is to be given, by first class mail, registered or certified, postage
prepaid and properly addressed, to the party as follows:
If to Executive: Robert J. Swift, Jr.
_________________________
_________________________
Facsimile:_________________
If to the Company: First Mid-Illinois Bancshares, Inc.
1515 Charleston Avenue
Mattoon, Illinois 61938
Facsimile: 217-234-0485
Attention: Chairman
Any party may change its address for the purpose of this Section by giving
the other party written notice of its new address in the manner set forth above.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
FIRST MID-ILLINOIS BANCSHARES, INC.
By: /S/ WILLIAM S. ROWLAND
William S. Rowland
Title: CHAIRMAN OF THE BOARD
EXECUTIVE:
/S/ ROBERT J. SWIFT, JR.
Robert J. Swift, Jr.
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
The Company follows Financial Accounting Standards Board's Statement No.
128, "EARNINGS PER SHARE" ("SFAS 128") in which income for Basic Earnings per
Share ("EPS") is adjusted for dividends attributable to preferred stock 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 by the assumed conversion of the convertible preferred stock and the
assumed conversion of the stock options.
The components of basic and diluted earnings per common share for the years
ended December 31, 2000, 1999, and 1998 are as follows:
2000 1999 1998
BASIC EARNINGS PER SHARE:
Net income $ 5,660,000 $ 5,232,000 $ 5,062,000
Less preferred stock dividends -- (304,000) (285,000)
Net income available to common stockholders $ 5,660,000 $ 4,928,000 $ 4,777,000
Weighted average common shares outstanding 2,257,407 2,055,905 1,999,767
Basic Earnings per Common Share $ 2.51 $ 2.40 $ 2.39
DILUTED EARNINGS PER SHARE:
Net income available to common stockholders $ 5,660,000 $ 4,928,000 $ 4,777,000
Assumed conversion of preferred stock -- 304,000 285,000
Net income available to common stock-
holders after assumed conversion $ 5,660,000 $ 5,232,000 $ 5,062,000
Weighted average common shares outstanding 2,257,407 2,055,905 1,999,767
Assumed conversion of stock options 5,279 7,493 8,149
Assumed conversion of preferred stock -- 216,901 249,122
Diluted weighted average common
shares outstanding 2,262,685 2,280,300 2,257,038
Diluted Earnings per Common Share $ 2.50 $ 2.29 $ 2.24
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
First Mid-Illinois Bank & Trust, N.A. (a national banking association)
Mid-Illinois Data Services, Inc. (a Delaware corporation)
First Mid-Illinois Insurance Services, Inc. (an Illinois corporation; 100% owned
by First Mid Bank)
EXHIBIT 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC
ACCOUNTANTS
The Board of Directors
First Mid-Illinois Bancshares, Inc.:
RE: Registration Statements
Registration No. 033-84404 on Form S-3
Registration No. 033-64061 on Form S-8
Registration No. 033-64139 on Form S-8
Registration No. 333-69673 on Form S-8
We consent to incorporation by reference in the subject Registration
Statements on Forms S-3 and S-8 of First Mid-Illinois Bancshares, Inc. of our
report dated January 26, 2001, relating to the consolidated balance sheets of
First Mid-Illinois Bancshares, Inc. and subsidiaries as of December 31, 2000 and
1999, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2000, which report appears in the December 31, 2000
annual report on Form 10-K of First Mid-Illinois Bancshares, Inc.
/s/ KPMG LLP
Chicago, Illinois
March 27, 2001