SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001 Commission
file number: 0-13368
FIRST MID-ILLINOIS BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State of incorporation)
37-1103704
(I.R.S. employer identification No.)
1515 Charleston Avenue, Mattoon, Illinois 61938
(Address and Zip Code of Principal Executive Offices)
(217) 234-7454
(Registrant's telephone number, including area code)
Indicate by check mark whether the Company (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the Company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
As of May 10, 2001, 2,245,745 common shares, $4.00 par value, were
outstanding.
1
PART I
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets (unaudited) March 31, December 31,
(In thousands, except share data) 2001 2000
--------------- --------------
Assets:
Cash and due from banks:
Non-interest bearing $ 16,363 $ 22,035
Interest bearing 46 80
Federal funds sold 8,975 2,725
--------------- --------------
Cash and cash equivalents 25,384 24,840
Investment securities:
Available-for-sale, at fair value 151,396 150,034
Held-to-maturity, at amortized cost (estimated fair
value of $2,839 and $2,800 at March 31, 2001
and December 31, 2000, respectively) 2,757 2,757
Loans 423,838 429,288
Less allowance for loan losses 3,403 3,262
--------------- --------------
Net loans 420,435 426,026
Premises and equipment, net 15,142 15,375
Intangible assets, net 11,856 12,150
Other assets 9,453 11,817
--------------- --------------
Total assets $636,423 $642,999
--------------- --------------
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing $ 63,935 $ 66,646
Interest bearing 453,572 437,339
--------------- --------------
Total deposits 517,507 503,985
Securities sold under agreements to repurchase 25,406 31,096
Federal Home Loan Bank advances-short term -- 20,000
Federal Home Loan Bank advances-long term 23,300 20,300
Long-term debt 4,325 4,325
Other liabilities 5,325 5,566
--------------- --------------
Total liabilities 575,863 585,272
--------------- --------------
Stockholders' Equity:
Common stock, $4 par value; authorized 6,000,000
shares; issued 2,342,896 shares in 2001 and
2,325,469 shares in 2000 9,372 9,302
Additional paid-in-capital 12,715 12,293
Retained earnings 40,634 39,169
Deferred compensation 1,299 1,218
Accumulated other comprehensive income (loss) 846 (288)
Less treasury stock at cost, 93,601 shares
in 2001 and 85,404 shares in 2000 (4,306) (3,967)
--------------- --------------
Total stockholders' equity 60,560 57,727
--------------- --------------
Total liabilities and stockholders' equity $636,423 $642,999
--------------- --------------
See accompanying notes to unaudited consolidated financial statements.
2
Consolidated Statements of Income
(unaudited) Three months ended
(In thousands, except per share data) March 31,
2001 2000
---------- ----------
Interest income:
Interest and fees on loans $ 9,015 $ 8,165
Interest on investment securities 2,221 2,288
Interest on federal funds sold 34 37
Interest on deposits with
other financial institutions 1 1
---------- ----------
Total interest income 11,271 10,491
Interest expense:
Interest on deposits 5,052 4,232
Interest on securities sold under agreements
to repurchase 292 289
Interest on Federal Home Loan Bank advances 404 359
Interest on Federal funds purchased 6 36
Interest on long-term debt 74 75
---------- ----------
Total interest expense 5,828 4,992
---------- ----------
Net interest income 5,443 5,499
Provision for loan losses 150 150
---------- ----------
Net interest income after provision 5,293 5,349
Other income:
Trust revenues 500 513
Brokerage revenues 97 137
Service charges 717 592
Securities gains 58 --
Mortgage banking income 178 62
Other 446 306
---------- ----------
Total other income 1,996 1,610
Other expense:
Salaries and employee benefits 2,552 2,510
Net occupancy and equipment expense 951 878
Amortization of intangible assets 294 302
Stationery and supplies 156 148
Legal and professional 235 170
Marketing and promotion 158 157
Other 819 731
---------- ----------
Total other expense 5,165 4,896
---------- ----------
Income before income taxes 2,124 2,063
Income taxes 659 633
---------- ----------
Net income $ 1,465 $ 1,430
---------- ----------
Per share data:
Basic earnings per share $ .65 $ .63
Diluted earnings per share $ .65 $ .63
---------- ----------
See accompanying notes to unaudited consolidated financial statements.
3
Consolidated Statements of Cash Flows (unaudited)
For the three months ended
March 31,
(In thousands) 2001 2000
------------ ------------
Cash flows from operating activities:
Net income $ 1,465 $ 1,430
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 150 150
Depreciation, amortization and accretion, net 738 703
Gain on sale of securities, net (58) --
Loss on sale of other real property owned, net 3 16
Gain on sale of mortgage loans held for sale, net (116) (45)
Origination of mortgage loans held for sale (9,881) (3,062)
Proceeds from sale of mortgage loans held for sale 8,402 3,030
Decrease in other assets 2,383 1,231
Increase (decrease) in other liabilities (242) 153
------------ ------------
Net cash provided by operating activities 2,844 3,606
------------ ------------
Cash flows from investing activities:
Capitalization of mortgage servicing rights (35) (9)
Purchases of premises and equipment (260) (363)
Net (increase) decrease in loans 7,036 (9,166)
Proceeds from sales of securities available-for-sale 1,739 --
Proceeds from maturities of securities avai 18,279 1,853
Purchases of securities available-for-sale (19,355) --
Purchases of securities held-to-maturity (54) (1,086)
------------ ------------
Net cash provided by (used in) investing activities 7,350 (8,771)
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in deposits 13,522 (1,249)
Decrease in repurchase agreements (5,690) (8,425)
Decrease in federal funds purchased -- (1,175)
Increase (decrease) in FHLB advances short-term (20,000) 17,300
Increase (decrease) in FHLB advances long-term 3,000 (5,500)
Proceeds from issuance of common stock 94 --
Purchase of treasury stock (258) (677)
Dividends paid on common stock (318) (310)
------------ ------------
Net cash used in financing activities (9,650) (36)
------------ ------------
Increase (decrease) in cash and cash equivalents 544 (5,201)
Cash and cash equivalents at beginning of period 24,840 21,842
------------ ------------
Cash and cash equivalents at end of period $25,384 $16,641
------------ ------------
Additional disclosures of cash flow information Cash paid during the period for:
Interest $ 5,460 $ 4,852
Income taxes -- 30
Dividends reinvested in common stock 398 374
------------ ------------
See accompanying notes to unaudited consolidated financial statements.
4
Notes To Consolidated Financial Statements
(Unaudited)
Summary of Significant Accounting Policies
Basis of Accounting and Consolidation
The unaudited consolidated financial statements include the accounts of
First Mid-Illinois Bancshares, Inc. ("Company") and its wholly-owned s
Mid-Illinois Data Services, Inc. ("MIDS") and First Mid-Illinois Bank & Trust,
N.A. ("First Mid Bank") and its wholly-owned subsidiary First Mid-Illinois
Insurance Services, Inc. ("First Mid Insurance"). All significant inter-company
balances and transactions have been eliminated in consolidation. The financial
information reflects all adjustments which, in the opinion of management, are
necessary to present a fair statement of the results of the interim periods
ended March 31, 2001 and 2000, and all such adjustments are of a normal
recurring nature. The results of the interim period ended March 31, 2001, are
not necessarily indicative of the results expected for the year ending December
31, 2001.
The unaudited consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X
and do not include all of the information required by accounting principles
generally accepted in the United States of America for complete financial
statements and related footnote disclosures. These financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's 2000 Form 10-K.
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 on January 1, 2001, did not have a material
impact on the Company's financial position, results of operation or liquidity.
5
Comprehensive Income
The Company's comprehensive income for the three month periods ended March
31, 2001 and 2000 is as follows:
Three months ended
March 31,
-------------------
(In thousands) 2001 2000
--------- ---------
Net income $1,465 $1,430
Other comprehensive income:
Unrealized gain (loss) during the period 1,909 (85)
Less: realized gain during the period (58) --
Tax effect (717) 33
--------- ---------
Comprehensive income $2,599 $1,378
--------- ---------
Earnings Per Share
Income for basic earnings per share ("EPS") 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 Company's stock options. The components of basic and
diluted earnings per common share for the three month periods ended March 31,
2001 and 2000 are as follows:
Three months ended
March 31,
----------------------
2001 2000
----------- ----------
Basic Earnings per Share:
Net income $1,465,000 $1,430,000
Weighted average common shares
outstanding 2,251,576 2,277,737
----------- ----------
Basic earnings per common share $ .65 $ .63
----------- ----------
Diluted Earnings per Share:
Weighted average common shares
outstanding 2,251,576 2,277,737
Assumed conversion of stock options 6,059 4,541
----------- ----------
Diluted weighted average common
shares outstanding 2,257,635 2,282,278
----------- ----------
Diluted earnings per common share $ .65 $ .63
----------- ----------
Mergers and Acquisitions
On April 20, 2001, First Mid Bank acquired all outstanding stock of
American Bank of Illinois located in Highland, Illinois, for $3.7 million in
cash. This acquisition added approximately $30.8 million to total deposits,
$24.9 million to loans, $2 million to securities, $1.7 million to premises and
equipment and $1.4 million to intangible assets. The acquisition was accounted
for using the purchase method of accounting whereby the acquired assets and
liabilities were recorded at fair values as of the acquisition date.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to provide a better
understanding of the consolidated financial condition and results of operations
of the Company and its subsidiaries for the periods ended March 31, 2001 and
2000. This discussion and analysis should be read in conjunction with the
consolidated financial statements, related notes and selected financial data
appearing elsewhere in this report.
Forward-Looking Statements
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, such as, discussions of the
Company's pricing and fee trends, credit quality and outlook, liquidity, new
business results, expansion plans, anticipated expenses and planned schedules.
The Company intends such forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and is including this statement for
purposes of these safe harbor provisions. Forward-looking statements, which are
based on certain assumptions and describe future plans, strategies and
expectations of the Company, are identified by use of the words "believe,"
"expect," "intend," "anticipate," "estimate," "project," or similar expressions.
Actual results could differ materially from the results indicated by these
statements because the realization of those results is subject to many
uncertainties including: changes in interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Company's market area and accounting principles, policies and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. Further
information concerning the Company and its business, including additional
factors that could materially affect the Company's financial results, is
included in the Company's filings with the Securities and Exchange Commission.
Overview
Net income for the three months ended March 31, 2001 was $1,465,000 ($.65
diluted EPS), an increase of $35,000 from $1,430,000 ($.63 diluted EPS) for the
same period in 2000. A summary of the factors which contributed to the change in
net income for the three months is shown in the table below.
2001 vs 2000
(In thousands) Three months
--------------
Net interest income $ (56)
Other income, including securities
transactions 386
Other expenses 269
Income taxes 26
--------------
Increase in net income $ 35
--------------
7
The following table shows the Company's annualized performance ratios for
the three months ended March 31, 2001 and 2000, as compared to the performance
ratios for the year ended December 31, 2000:
March 31, March 31, December 31,
2001 2000 2000
------------- -------------- -------------
Return on average assets .93% .96% .92%
Return on average equity 9.91% 11.13% 10.55%
Return on average common equity 9.91% 11.03% 10.55%
Average equity to average assets 9.37% 8.66% 8.70%
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 income taxes at 34%. 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):
8
Three Months Ended Three Months Ended
March 31, 2001 March 31, 2000
--------------------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
--------------------------------------------------
ASSETS
Interest-bearing deposits $ 68 $ 1 5.84% $ 93 $ 1 5.61%
Federal funds sold 2,577 34 5.31% 2,654 37 5.56%
Investment securities
Taxable 120,155 1,870 6.22% 121,912 1,926 6.32%
Tax-exempt (1) 30,681 532 6.93% 29,755 549 7.37%
Loans (2)(3) 427,476 9,015 8.44% 390,042 8,165 8.37%
--------------------------------------------------
Total earning assets 580,957 11,452 7.88% 544,456 10,678 7.84%
--------------------------------------------------
Cash and due from banks 15,965 16,878
Premises and equipment 15,319 16,109
Other assets 22,431 24,313
Allowance for loan losses (3,332) (3,005)
--------- ---------
Total assets $631,340 $598,751
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits
Demand deposits $162,805 $ 1,238 3.04% $160,657 $ 1,144 2.85%
Savings deposits 36,999 220 2.38% 40,603 238 2.34%
Time deposits 248,737 3,594 5.78% 224,325 2,851 5.08%
Securities sold under
agreements to repurchase 24,053 292 4.86% 23,928 289 4.83%
FHLB advances 27,094 404 5.96% 24,840 359 5.78%
Federal funds purchased 387 6 5.82% 2,370 36 6.00%
Long-term debt 4,325 74 6.84% 4,325 75 6.96%
--------------------------------------------------
Total interest-bearing
liabilities 504,400 5,828 4.62% 481,048 4,992 4.15%
--------------------------------------------------
Demand deposits 62,358 61,269
Other liabilities 5,423 4,572
Stockholders' equity 59,160 51,863
--------- ---------
Total liabilities & equity $631,340 $598,751
--------- ---------
Net interest income (TE) $ 5,624 $ 5,686
-------- --------
Net interest spread 3.26% 3.69%
Impact of non-interest
bearing funds .61% .49%
-------- --------
Net yield on interest-
earning assets (TE) 3.87% 4.18%
-------- --------
(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
three months ended March 31, 2001, as compared to the same period in 2000 (in
thousands):
9
For the three months ended March 31,
2001 compared to 2000
Increase / (Decrease)
------------------------------------------
Total Rate/
Change Volume Rate Volume (4)
------------------------------------------
Earning Assets:
Interest-bearing deposits $ -- $ -- $ -- $ --
Federal funds sold (3) (1) (2) --
Investment securities:
Taxable (56) (28) (29) 1
Tax-exempt (1) (17) 17 (33) (1)
Loans (2)(3) 850 780 64 6
------------------------------------------
Total interest income 774 768 -- 6
------------------------------------------
Interest-Bearing Liabilities:
Interest-bearing deposits
Demand deposits 94 16 77 1
Savings deposits (18) (22) 4 --
Time deposits 743 308 392 43
Securities sold under
agreements to repurchase 3 2 1 --
FHLB advances 45 33 11 1
Federal funds purchased (30) (30) (1) 1
Long-term debt (1) -- (1) --
------------------------------------------
Total interest expense 836 307 483 46
------------------------------------------
Net interest income $ (62) $ 461 $ (483) $ (40)
------------------------------------------
(1) Interest income and rates are presented on a tax-equivalent basis, assuming
a federal income tax rate of 34%.
(2) Loan fees are included in interest income and are not material.
(3) Nonaccrual loans are not material and have been included in the average
balances.
(4) The changes in rate/volume are computed on a consistent basis by multiplying
the change in rates with the change in volume.
On an tax equivalent basis, net interest income decreased $62,000, or 1.1%
to $5,624,000 for the three months ended March 31, 2001, from $5,686,000 for the
same period in 2000. The decrease in net interest income was primarily due to an
increase in rates on interest bearing liabilities greater than the increase in
rates on interest earning assets.
For the three months ended March 31, 2001, average earning assets increased
by $36,501,000, or 6.6%, and average interest-bearing liabilities increased
$23,352,000, or 4.9%, compared with average balances for the three months ended
March 31, 2000. Changes in average balances, as a percent of average earnings
assets, are shown below:
o average loans (as a percent of average earnings assets) increased 2.0%
to 73.6% for the three months ended March 31, 2001 from 71.6% for the
three months ended March 31, 2000.
o average securities (as a percent of average earnings assets) decreased
1.9% to 26.0% for the three months ended March 31, 2001 from 27.9% for
the three months ended March 31, 2000.
o net interest margin, on a tax equivalent basis, decreased to 3.87% for
the three months ended March 31, 2001, from 4.18% for the three months
ended March 31, 2000.
10
Provision for Loan Losses
The provision for loan losses for the three months ended March 31, 2001 and
2000 was $150,000. For information on loan loss experience and nonperforming
loans, see the "Nonperforming Loans" and "Loan Quality and Allowance for Loan
Losses" sections later in this document.
Other Income
An important source of the Company's revenue is derived from other income.
The following table sets forth the major components of other income for the
three months ended March 31, 2001 and 2000 (in thousands):
Three months ended
2001 2000 $ change
---------- --------- ----------
Trust $ 500 $ 513 $ (13)
Brokerage 97 137 (40)
Service charges 717 592 125
Security gains 58 -- 58
Mortgage banking 178 62 116
Other 446 306 140
---------- --------- ----------
Total other income $ 1,996 $ 1,610 $ 386
---------- --------- ----------
o Total non-interest income increased to $1,996,000 for the three months
ended March 31, 2001, compared to $1,610,000 for the same period in 2000.
o Trust revenues decreased $13,000 or 2.5% to $500,000 for the three months
ended March 31, 2001, compared to $513,000 for the same period in 2000.
o Trust assets, reported at market value, were $290 million at March 31,
2001, $303 million at December 31, 2000 and $330 million at March 31, 2000.
o Revenues from brokerage and annuity sales decreased $40,000 or 29.2% for
the three months ended March 31, 2001, compared with the same period in
2000, as a result of decreased sales of annuities.
o Fees from service charges increased $125,000 or 21.1% to $717,000 for the
three months ended March 31, 2001, compared to $592,000 for the same period
in 2000. This increase was primarily due to an increase in the number of
savings and transaction accounts and an increase in the fees charged on
deposit accounts.
o Sales of securities resulted in a net gain of $58,000 for the three months
ended March 31, 2001 as compared with no net gain or loss for the same
period in 2000.
o Mortgage banking income increased $116,000 or 187.1% to $178,000 for the
three months ended March 31, 2001, compared to $62,000 for the same period
in 2000. This increase was due to a higher number of fixed rate loans
originated and sold by First Mid Bank as a result of falling interest r
Loans sold balances are as follows:
o $8.3 million (representing 97 loans) for the three months ended March
31, 2001.
o $3.0 million (representing 41 loans) for the three months ended March
31, 2000.
o Other income increased $140,000 or 45.7% to $446,000 for the three months
ended March 31, 2001, compared to $306,000 for the same period in 2000.
This increase is partially due to additional income received for credit
life insurance sales.
11
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 three months ended March 31, 2001 and 2000
(in thousands):
Three months ended
2001 2000 $ change
--------- --------- ---------
Salaries and benefits $ 2,552 $ 2,510 $ 42
Occupancy and equipment 951 878 73
FDIC premiums 24 26 (2)
Amortization of intangibles 294 302 (8)
Stationery and supplies 156 148 8
Legal and professional fees 235 170 65
Marketing and promotion 158 157 1
Other operating expenses 819 731 88
--------- --------- ---------
Total other expense $ 5,165 $ 4,896 $ 269
--------- --------- ---------
o Salaries and employee benefits, the largest component of other expense,
increased $42,000 or 1.7% to $2,552,000 for the three months ended March
31, 2001, compared to $2,510,000 for the same period in 2000. This increase
can be explained by merit increases for continuing employees.
o There were 274.5 FTE employees at March 31, 2001 compared to 272 at
March 31, 2000.
o Occupancy and equipment expense increased $73,000 or 8.3% to $951,000 for
the three months ended March 31, 2001, compared to $878,000 for the same
period in 2000. This increase included depreciation expense recorded on
assets placed in service during the year as well as an increase in
utilities expense for all buildings.
o Amortization of intangible assets decreased $8,000 or 2.6% to $294,000 for
the three months ended March 31, 2001, compared to $302,000 for the same
period in 2000.
o All other categories of operating expenses increased a net of $162,000 or
13.4% to $1,368,000 for the three months ended March 31, 2001, compared to
$1,206,000 for the same period in 2000. This increase is primarily due to
higher expense for office supplies and printing forms associated with the
purchase of American Bank of Illinois.
Income Taxes
Total income tax expense amounted to $659,000 for the three months ended
March 31, 2001, compared to $633,000 for the same period in 2000. Effective tax
rates were 31.0% and 30.7% for the three months ended March 31, 2001 and 2000.
Analysis of Balance Sheets
Loans
The loan portfolio is the largest category of the Company's earning assets.
The following table summarizes the composition of the loan portfolio as of March
31, 2001 and December 31, 2000 (in thousands):
12
March 31, December 31,
2001 2000
--------------------------
Real estate - residential $134,461 $140,842
Real estate - agriculture 36,677 33,689
Real estate - commercial 126,413 124,721
--------------------------
Total real estate - mortgage $297,551 $299,252
Commercial and agricultural 96,835 100,201
Installment 28,403 28,674
Other 1,049 1,161
--------------------------
Total loans $423,838 $429,288
--------------------------
At March 31, 2001, the Company had loan concentrations in agricultural
industries of $69.0 million, or 16.3%, of outstanding loans and $67.9 million,
or 15.8%, at December 31, 2000. The Company had no further industry loan
concentrations in excess of 10% of outstanding loans.
Real estate mortgage loans have averaged approximately 70% of the Company's
total loan portfolio for the past several years. This is the result of a strong
local housing market and the Company's historical focus on residential real
estate lending. The balance of real estate loans held for sale amounted to
$2,182,000 and $587,000 as of March 31, 2001 and December 31, 2000,
respectively.
The following table presents the balance of loans outstanding as of March
31, 2001, by maturities (dollars in thousands):
Maturity (1)
--------------------------------------------
Over 1
One year through Over
or less (2) 5 years 5 years Total
--------------------------------------------
Real estate - residential $ 31,348 $ 84,655 $ 18,458 $134,461
Real estate - agriculture 5,632 25,624 5,421 36,677
Real estate - commercial 29,684 90,184 6,545 126,413
--------------------------------------------
Total real estate - mortgage $ 66,664 $200,463 $ 30,424 $297,551
Commercial and agricultural 60,075 34,856 1,904 96,835
Installment 5,436 21,041 1,926 28,403
Other 214 280 555 1,049
--------------------------------------------
Total loans $132,389 $256,640 $ 34,809 $423,838
--------------------------------------------
(1) Based on scheduled principal repayments.
(2) Includes demand loans, past due loans and overdrafts.
As of March 31, 2001, loans with maturities over one year consisted of
approximately $257,824,000 in fixed rate loans and $33,625,000 in variable rate
loans. The loan maturities noted above are based on the contractual provisions
of the individual loans. Rollovers and borrower requests are handled on a
case-by- case basis.
Nonperforming Loans
Nonperforming loans include: (a) loans accounted for on a nonaccrual basis;
(b) accruing loans contractually past due ninety days or more as to interest or
principal payments; and loans not included in (a) and (b) above which are
defined as "renegotiated loans".
13
The following table presents information concerning the aggregate amount of
nonperforming loans at March 31, 2001 and December 31, 2000 (in thousands):
March 31, December 31,
2001 2000
-------------------------
Nonaccrual loans $3,767 $2,982
Loans past due ninety days
or more and still accruing -- 245
Renegotiated loans which are
performing in accordance
with revised terms 204 232
-------------------------
Total Nonperforming Loans $3,971 $3,459
-------------------------
Interest income that would have been reported if nonaccrual and
renegotiated loans had been performing totaled $117,000 for the three months
ended March 31, 2001 and $154,000 for the year ended December 31, 2000. Interest
income that was included in income totaled $4,000 and $20,000 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.
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 in the loan portfolio. The
provision for loan losses is the charge against current earnings that is
determined by management as the amount needed to maintain an adequate allowance
for loan losses. In determining the adequacy of the allowance for loan losses,
and therefore the provision to be charged to current earnings, management relies
predominantly on a disciplined credit review and approval process which extends
to the full range of the Company's credit exposure. The review process is
directed by overall lending policy and is intended to identify, at the earliest
possible stage, borrowers who might be facing financial difficulty. Once
identified, the magnitude of exposure to individual borrowers is quantified in
the form of specific allocations of the allowance for loan losses. Collateral
values are considered by management in the determination of such specific
allocations. Additional factors considered by management in evaluating the
overall adequacy of the allowance include historical net loan losses, the level
and composition of nonaccrual, past due and renegotiated loans and the current
economic conditions in the region where the Company operates.
Management recognizes that there are risk factors which are inherent in the
Company's loan portfolio. All financial institutions face risk factors in their
loan portfolios because risk exposure is a function of the business. The
Company's operations (and therefore its loans) are concentrated in east central
Illinois, an area where agriculture is the dominant industry. Accordingly,
lending and other business relationships with agriculture-based businesses are
critical to the Company's success. At March 31, 2001 the Company's loan
portfolio included $69.0 million of loans to borrowers whose businesses are
directly related to agriculture. The balance remained stable from $67.9 million
at December 31, 2000. While the Company adheres to sound underwriting practices
including collateralization of loans, an extended period of low commodity prices
and/or significantly reduced yields on crops could nevertheless result in an
increase in the level of problem agriculture loans.
14
Analysis of the allowance for loan losses as of March 31, 2001 and 2000,
and of changes in the allowance for the three months ended March 31, 2001 and
2000, is as as follows (dollars in thousands):
March 31,
2001 2000
--------------------------
Average loans outstanding, net of
unearned income $427,476 $390,042
Allowance-beginning of period $ 3,262 $ 2,939
Charge-offs:
Real estate-mortgage -- 5
Commercial, financial & agricultural 4 --
Installment 24 27
--------------------------
Total charge-offs 28 32
Recoveries:
Real estate-mortgage -- 1
Commercial, financial & agricultural 6 5
Installment 13 6
--------------------------
Total recoveries 19 12
--------------------------
Net charge-offs 5 20
--------------------------
Provision for loan losses 150 150
--------------------------
Allowance-end of period $ 3,403 $ 3,069
--------------------------
Ratio of net charge-offs to average loans .001% .005%
--------------------------
Ratio of allowance for loan losses to
loans outstanding (less unearned
interest at end of period) .80% .77%
--------------------------
Ratio of allowance for loan losses
to nonperforming loans 85.7% 102.6%
--------------------------
The Company minimizes credit risk by adhering to sound underwriting and
credit review policies. These policies are reviewed at least annually, and
changes are approved by the board of directors. Senior management is actively
involved in business development efforts and the maintenance and monitoring of
credit underwriting and approval. The loan review system and controls are
designed to identify, monitor and address asset quality problems in an accurate
and timely manner. On a monthly basis, the board of directors reviews the status
of problem loans. In addition to internal policies and controls, regulatory
authorities periodically review asset quality and the overall adequacy of the
allowance for loan losses.
15
Securities
The Company's overall investment goal is to maximize earnings while
maintaining liquidity in securities having minimal credit risk. The types and
maturities of securities purchased are primarily based on the Company's current
and projected liquidity and interest rate sensitivity positions. The following
table sets forth the amortized cost of the securities as of March 31, 2001 and
December 31, 2000 (in thousands):
March 31, December 31,
2001 2000
------------------ -------------------
% of % of
Amount Total Amount Total
---------- ------- ---------- --------
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 85,538 56% $ 89,202 58%
Obligations of states and
political subdivisions 30,487 20% 30,434 20%
Mortgage-backed securities 27,859 18% 27,750 18%
Other securities 8,888 6% 5,873 4%
---------- ------- ---------- --------
Total securities $152,772 100% $153,259 100%
---------- ------- ---------- --------
At March 31, 2001, the Company's investment portfolio showed an increase in
other securities and a decrease in U.S. Treasury securities and obligations of
U.S. government corporations and agencies. All other types of securities
remained consistent.
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 March 31, 2001 and December 31, 2000 were as follows (in thousands):
16
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
March 31, 2001 - Available-for-sale: Cost Gains Losses Value
- ----------------------------------------- ----------- ---------- ----------- ----------
U.S. Treasury securities and obligations
of U.S. Government corporations & agencies $ 85,538 $ 628 $ (17) $ 86,149
Obligations of states and political
subdivisions 27,730 464 (25) 28,169
Mortgage-backed securities 27,859 214 (67) 28,006
Federal Home Loan Bank stock 2,762 -- -- 2,762
Other securities 6,126 184 -- 6,310
----------- ---------- ----------- ----------
Total available-for-sale $150,015 $ 1,490 $ (109) $151,396
----------- ---------- ----------- ----------
March 31, 2001 - Held-to-maturity:
Obligations of states and political
subdivisions $ 2,757 $ 81 $ -- $ 2,839
----------- ---------- ----------- ----------
December 31, 2000 - Available-for-sale:
U.S. Treasury securities and obligations
of U.S. Government corporations & 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
----------- ---------- ----------- ----------
December 31, 2000 - Held-to-maturity:
Obligations of states and political
subdivisions $ 2,757 $ 43 $ -- $ 2,800
----------- ---------- ----------- ----------
The following table indicates the expected maturities of investment
securities classified as available-for-sale and held-to-maturity, presented at
amortized cost, at March 31, 2001 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
(dollars in thousands) or less 5 years 10 years years Total
------------------------------------------------
Available-for-sale:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 2,000 $72,759 $ 6,493 $ 4,286 $ 85,538
Obligations of state and
political subdivisions 234 3,994 12,008 11,494 27,730
Mortgage-backed securities -- 12,611 10,248 5,000 27,859
Other securities -- -- -- 8,888 8,888
------------------------------------------------
Total Investments $ 2,234 $89,364 $28,749 $29,668 $150,015
------------------------------------------------
Weighted average yield 5.59% 5.75% 5.66% 6.49% 5.88%
Full tax-equivalent yield 5.91% 5.85% 6.61% 7.45% 6.31%
------------------------------------------------
Held-to-maturity:
Obligations of state and
political subdivisions $ 686 $ 755 $ 675 $ 641 $ 2,757
------------------------------------------------
Weighted average yield 4.80% 5.34% 5.49% 5.44% 5.27%
Full tax-equivalent yield 7.27% 8.09% 8.32% 8.25% 7.98%
------------------------------------------------
17
The weighted average yields are calculated on the basis of the amortized
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 March 31, 2001.
Investment securities carried at approximately $134,248,000 and
$131,654,000 at March 31, 2001 and December 31, 2000, respectively, were pledged
to secure public deposits and repurchase agreements and for other purposes as
permitted or required by law.
Deposits
Funding of the Company's assets is substantially provided by a combination
of consumer, commercial and public fund deposits. The Company continues to focus
its strategies and emphasis on retail core deposits, the major component of
funding sources. The following table sets forth the average deposits and
weighted average rates for the three months ended March 31, 2001 and for the
year ended December 31, 2000 (dollars in thousands):
March 31, December 31,
2001 2000
------------------------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------------------------------------------
Demand deposits:
Non-interest bearing $ 62,358 -- $ 62,579 --
Interest bearing 162,805 3.04% 163,531 3.13%
Savings 36,999 2.38% 39,215 2.43%
Time deposits 248,737 5.78% 226,259 5.42%
------------------------------------------
Total average deposits $510,899 3.96% $491,584 3.73%
------------------------------------------
The following table sets forth the maturity of time deposits of $100,000 or
more at March 31, 2001 and December 31, 2000 (in thousands):
March 31, December 31,
2001 2000
--------------------------
3 months or less $ 26,355 $ 15,413
Over 3 through 6 months 17,787 20,283
Over 6 through 12 months 19,038 18,663
Over 12 months 6,444 8,558
--------------------------
Total $ 69,624 $ 62,922
--------------------------
Other Borrowings
Other borrowings consist of securities sold under agreements to repurchase,
Federal Home Loan Bank advances, and federal funds purchased. Information
relating to other borrowings as of March 31, 2001 and December 31, 2000 is
presented below (in thousands):
18
March 31, December 31,
2001 2000
------------- --------------
Securities sold under agreements to repurchase $25,406 $31,096
Federal Home Loan Bank advances:
Overnight -- 20,000
Fixed term - due after one year 23,300 20,300
Total $48,706 $71,396
------------- --------------
Average interest rate at end of period 5.16% 6.06%
Maximum Outstanding at any Month-end
Securities sold under agreements to repurchase $25,406 $34,546
Federal Home Loan Bank advances:
Overnight 12,800 44,000
Fixed term - due after one year 23,300 20,300
Federal funds purchased -- 1,000
------------- --------------
Total $61,506 $99,846
------------- --------------
Averages for the Period Ended
Securities sold under agreements to repurchase $24,053 $23,349
Federal Home Loan Bank advances:
Overnight 5,760 25,214
Fixed term - due after one year 21,333 10,345
Federal funds purchased 387 1,223
------------- --------------
Total $51,533 $60,131
------------- --------------
Average interest rate during the period 5.45% 6.12%
Securities sold under agreements to repurchase are short-term obligations
of First Mid Bank. First Mid Bank collateralizes these obligations with certain
government securities which are direct obligations of the United States or one
of its agencies. First Mid Bank offers these retail repurchase agreements as a
cash management service to its corporate customers.
Federal Home Loan Bank advances represent borrowings by First Mid Bank to
economically fund loan demand. This loan demand was previously funded primarily
through deposits by the State of Illinois. The fixed term advances consists of
$23.3 million which First Mid is using to fund agricultural loans:
o $5 million advance at 6.16% with a 5-year maturity, due 03/20/05
o $2.3 million advance at 6.10% with a 5-year maturity, due 04/07/05
o $5 million advance at 6.12% with a 5-year maturity, due 09/06/05
o $3 million advance at 6.58% with a 2-year maturity, due 10/10/02
o $5 million advance at 6.00% with a 5-year maturity, due 12/14/05
o $3 million advance at 5.98% with a 10-year maturity, due 03/01/11
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.
19
The Company monitors its interest rate sensitivity position to maintain a
balance between rate sensitive assets and rate sensitive liabilities. This
balance serves to limit the adverse effects of changes in interest rates. The
Company's asset/liability management committee oversees the interest rate
sensitivity position and directs the overall allocation of funds.
In the banking industry, a traditional measurement of interest rate
sensitivity is known as a "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 March 31, 2001 (in thousands):
Number of Months Until Next Repricing Opportunity
0-1 1-3 3-6 6-12 12+
---------- ----------- ---------- ----------- ----------
Interest earning assets:
Federal funds sold $ 8,975 $ -- $ -- $ -- $ --
Taxable investment securities 26,161 19,536 12,830 4,388 60,358
Nontaxable investment 30 935 140 1,928 27,893
securities
Loans 67,095 22,711 29,052 65,740 239,239
---------- ----------- ---------- ----------- ----------
Total $102,261 $ 43,182 $ 42,022 $ 72,056 $ 327,490
---------- ----------- ---------- ----------- ----------
Interest bearing liabilities:
Savings and N.O.W. accounts 150,771 -- -- -- --
Money market accounts 52,867 -- -- -- --
Other time deposits 32,694 32,653 53,381 79,257 51,951
Other borrowings 25,361 -- -- -- 23,345
Long-term debt 4,325 -- -- -- --
---------- ----------- ---------- ----------- ----------
Total $ 266,017 $ 32,653 $ 53,381 $ 79,257 $ 75,296
---------- ----------- ---------- ----------- ----------
Periodic GAP $(163,756) $ 10,529 $(11,359) $ (7,201) $252,195
---------- ----------- ---------- ----------- ----------
Cumulative GAP $(163,756) $(153,227) $(164,586) $(171,786) $ 80,408
---------- ----------- ---------- ----------- ----------
GAP as a % of interest earning assets:
Periodic (27.9%) 1.8% (1.9%) (1.2%) 43.0%
Cumulative (27.9%) (26.1%) (28.0%) (29.3%) 13.7%
---------- ----------- ---------- ----------- ----------
At March 31, 2001, the Company was liability sensitive on a cumulative
basis through the twelve-month time horizon. Accordingly, future increases in
interest rates, if any, could have an unfavorable effect on 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 rollovers of assets and liabilities, of which First Mid Bank
represents substantially all of the Company's rate sensitive assets and
liabilities.
Capital Resources
At March 31, 2001, the Company's stockholders' equity increased $2,833,000
or 4.9% to $60,560,000 from $57,727,000 as of December 31, 2000. During the
first three months of 2001, net income contributed $1,465,000 to equity before
the payment of dividends to common stockholders. The change in net unrealized
gain/loss on available-for-sale investment securities increased stockholders'
equity by $1,134,00, net of tax.
20
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, and
First Mid Bank follows similar minimum regulatory requirements established for
national banks by the Office of the Comptroller of the Currency. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary action by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements.
Quantitative measures established by each regulatory agency to ensure
capital adequacy require the reporting institutions to maintain a minimum total
risk-based capital ratio of 8% and a minimum leverage ratio of 3% for the most
highly-rated banks that do not expect significant growth. All other institutions
are required to maintain a minimum leverage ratio of 4%. Management believes
that, as of March 31, 2001 and December 31, 2000, all capital adequacy
requirements have been met by the Company and First Mid Bank.
As of March 31, 2001, the most recent notification from the primary
regulator categorized First Mid Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios must be
maintained as set forth in the table. There are no conditions or events since
that notification that management believes have changed this category.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
--------- --------- --------- --------- --------- ---------
March 31, 2001
Total Capital
(to risk-weighted assets)
Company $ 51,261 12.45% $ 32,950 > 8.00% N/A N/A
First Mid Bank 52,243 12.76% 32,764 > 8.00% $ 40,955 > 10.00%
Tier 1 Capital
(to risk-weighted assets)
Company 47,858 11.62% 16,475 > 4.00% N/A N/A
First Mid Bank 48,840 11.93% 16,382 > 4.00% 24,573 > 6.00%
Tier 1 Capital
(to average assets)
Company 47,858 7.73% 24,751 > 4.00% N/A N/A
First Mid Bank 48,840 7.92% 24,654 > 4.00% 30,817 > 5.00%
--------- --------- --------- --------- --------- ---------
21
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% N/A N/A
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 N/A N/A
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 N/A N/A
First Mid Bank 46,964 7.54 24,931 > 4.00 31,163 > 5.00%
--------- --------- --------- --------- --------- ---------
Banks and bank holding companies are generally expected to operate at or
above the minimum capital requirements. These ratios are in excess of regulatory
minimums and will allow the Company to operate without capital adequacy
concerns.
Stock Plans
The Company has four plans through which Company stock may be purchased by
participants, the Deferred Compensation Plan, the First Retirement and Savings
Plan, the Dividend Reinvestment Plan, and the Stock Incentive Plan. For more
detailed information on these plans, refer to the Company's 2000 Form 10-K.
On August 5, 1998, the Company announced a stock repurchase program of up
to 3% of its common stock. During 2000, the Board of Directors of the Company
authorized the repurchase of 5% in addition to the original 3% of its common
stock under the current stock repurchase program. The shares will be repurchased
at the most recent market price of the stock. The Company repurchased 8,197
shares (.34%) at a total price of $258,000 during the three months ended March
31, 2001 and 60,169 shares (2.74%) at a total price of $1,881,000 for the year
ended December 31, 2000. A total of 91,601 shares have been repurchased from the
inception of this program to March 31, 2001, and are held in treasury.
Liquidity
Liquidity represents the ability of the Company and its subsidiaries to
meet the requirements of customers for loans and deposit withdrawals. Liquidity
management focuses on the ability to obtain funds economically for these
purposes and to maintain assets which may be converted into cash at minimal
costs. Other sources for cash include deposits of the State of Illinois,
brokered deposits, and Federal Home Loan Bank advances. At March 31, 2001, the
excess collateral at the Federal Home Loan Bank will support approximately $60
million of additional advances.
Management monitors its expected liquidity requirements carefully, focusing
primarily on cash flows from:
o lending activities, including loan commitments, letters of credit and
mortgage prepayment assumptions.
o deposit activities, including seasonal demand of private and public
funds.
o investing activities, including prepayments of mortgage-backed
securities and call provisions on U.S. Government Treasuries and
Agencies.
o operating activities, including scheduled debt repayments and
dividends to shareholders.
22
As of March 31, 2001, the Company believes it will have sufficient funds to
meet obligations such as loan commitments and anticipated stock repurchases.
Effects of Inflation
Unlike industrial companies, virtually all of the assets and liabilities of
the Company are monetary in nature. As a result, interest rates have a more
significant impact on the Company's performance than the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or experience the same magnitude of changes as goods and services,
since such prices are effected by inflation. In the current economic
environment, liquidity and interest rate adjustments are features of the
Company's assets and liabilities which are important to the maintenance of
acceptable performance levels. The Company attempts to maintain a balance
between monetary assets and monetary liabilities, over time, to offset these
potential effects.
Future Accounting Changes
Statement of Financial Accounting Standards ("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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the market risks faced by the Company
since December 31, 2000. For information regarding the Company's market risk,
refer to the Company's Annual Report on Form 10-K for the year ended December
31, 2000.
23
PART II
ITEM 1. LEGAL PROCEEDINGS
Since First Mid Bank acts 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 U.S. Government breached its contractual obligations when, in
1989, it issued new rules which eliminated supervisory goodwill from inclusion
in regulatory capital. On August 6, 1998, First Mid Bank filed a motion with the
U.S. Court of Federal Claims to grant summary judgement on liability for breach
of contract in this matter. On August 13, 1998, the U.S. Government filed a
motion to stay such proceedings. At this time, it is too early to tell if First
Mid Bank will prevail in its motion and, if so, what damages, if any, may be
recovered.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits: The exhibits required by Item 601 of Regulation S-K and filed
herewith are listed in the Exhibit Index which follows the Signature Page and
immediately precedes the exhibits filed.
(b) Reports on Form 8-K: There was one report on Form 8-K filed by the Company
during the quarter ended March 31, 2001 to report earnings for the year ended
December 31, 2000.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FIRST MID-ILLINOIS BANCSHARES, INC.
(Company)
/s/ William S. Rowland
--------------------------------------
William S. Rowland
President and Chief Executive Officer
/s/ Michael L. Taylor
--------------------------------------
Michael L. Taylor
Chief Financial Officer
Dated: May 11, 2001
-----------------------
25
Exhibit Index to Form 10-Q
Exhibit
Number Description and Filing or Incorporation Reference
- -----------------------------------------------------------------------------
11.1 Statement re: Computation of Earnings Per Share
(Filed herewith on page 6)
26