UNITED STATES
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 September 30, 2002
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 November 14, 2002, 3,193,932 common shares, $4.00 par value, were
outstanding. The outstanding shares have been adjusted to reflect a
three-for-two stock split paid on November 16, 2001. (See Notes to Consolidated
Financial Statements).
PART I
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets (unaudited) September 30, December 31,
(In thousands, except share data) 2002 2001
------------- ------------
Assets
Cash and due from banks:
Non-interest bearing $ 23,325 $ 23,471
Interest bearing 20,954 5,400
Federal funds sold 33,750 4,225
------------- ------------
Cash and cash equivalents 78,029 33,096
Investment securities:
Available-for-sale, at fair value 150,068 160,096
Held-to-maturity, at amortized cost (estimated fair
value of $1,956 and $2,136 at September 30, 2002
and December 31, 2001, respectively) 1,917 2,071
Loans 500,242 473,243
Less allowance for loan losses (3,899) (3,702)
------------- ------------
Net loans 496,343 469,541
Premises and equipment, net 16,361 16,656
Accrued interest receivable 6,518 6,790
Goodwill, net 10,727 11,094
Intangible assets, net 2,848 1,298
Other assets 6,783 5,337
------------- ------------
Total assets $769,594 $ 705,979
============= ============
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing $ 86,559 $ 80,265
Interest bearing 524,269 479,155
------------- ------------
Total deposits 610,828 559,420
Accrued interest payable 1,768 2,370
Securities sold under agreements to repurchase 35,184 38,879
Other borrowings 43,625 37,625
Other liabilities 6,747 3,760
------------- ------------
Total liabilities 698,152 642,054
------------- ------------
Stockholders' Equity:
Common stock, $4 par value; authorized 6,000,000
shares; issued 3,601,937 shares in 2002 and
3,546,060 shares in 2001 14,408 14,184
Additional paid-in-capital 14,408 13,288
Retained earnings 44,636 39,500
Deferred compensation 1,536 1,392
Accumulated other comprehensive income 2,636 740
Less treasury stock at cost, 207,870 shares
in 2002 and 174,216 shares in 2001 (6,182) (5,179)
------------- ------------
Total stockholders' equity 71,442 63,925
------------- ------------
Total liabilities and stockholders' equity $769,594 $705,979
============= ============
See accompanying notes to unaudited consolidated financial statements.
Consolidated Statements of Income (unaudited)
(In thousands, except per share data) Three months ended Nine months ended
September 30, September 30,
------------ -------------
2002 2001 2002 2001
-------- -------- -------- ---------
Interest income:
Interest and fees on loans $ 8,496 $ 9,403 $25,317 $27,765
Interest on investment securities 1,800 1,926 5,578 6,309
Interest on federal funds sold 42 168 117 255
Interest on deposits with
other financial institutions 46 28 57 30
-------- -------- -------- ---------
Total interest income 10,384 11,525 31,069 34,359
-------- -------- -------- ---------
Interest expense:
Interest on deposits 2,881 4,690 9,255 14,714
Interest on securities sold under
agreements to repurchase 85 236 257 779
Interest on Federal Home Loan Bank advances 489 409 1,419 1,232
Interest on federal funds purchased 4 - 6 12
Interest on debt 46 53 131 189
-------- -------- -------- ---------
Total interest expense 3,505 5,388 11,068 16,926
-------- -------- -------- ---------
Net interest income 6,879 6,137 20,001 17,433
-------- -------- -------- ---------
Provision for loan losses 500 150 775 450
-------- -------- -------- ---------
Net interest income after
provision for loan losses 6,379 5,987 19,226 16,983
-------- -------- -------- ---------
Other income:
Trust revenues 470 455 1,398 1,426
Brokerage commissions 61 62 195 174
Insurance commissions 331 18 835 97
Service charges 1,092 793 2,609 2,309
Securities gains, net 107 14 223 154
Mortgage banking revenue 335 290 1,002 764
Other 516 444 1,413 1,368
-------- -------- -------- ---------
Total other income 2,912 2,076 7,675 6,292
-------- -------- -------- ---------
Other expense:
Salaries and employee benefits 3,242 2,850 9,344 8,152
Net occupancy and equipment expense 1,043 990 3,023 2,899
Amortization of goodwill 122 235 366 671
Amortization of other intangible assets 121 78 355 245
Stationery and supplies 174 164 452 501
Legal and professional 230 229 726 717
Marketing and promotion 140 155 449 544
Other 1,244 853 3,354 2,602
-------- -------- -------- ---------
Total other expense 6,316 5,554 18,069 16,331
-------- -------- -------- ---------
Income before income taxes 2,975 2,509 8,832 6,944
Income taxes 988 817 2,918 2,172
-------- -------- -------- ---------
Net income $ 1,987 $ 1,692 $ 5,914 $ 4,772
======== ======== ======== =========
Per share data:
Basic earnings per share $.58 $.50 $ 1.74 $1.41
Diluted earnings per share $.58 $.50 $ 1.73 $1.41
======== ======== ======== =========
See accompanying notes to unaudited consolidated financial statements.
Consolidated Statements of Cash Flows (unaudited) Nine months ended
(In thousands) 2002 2001
----------- -----------
Cash flows from operating activities:
Net income $ 5,914 $ 4,772
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 775 450
Depreciation, amortization and accretion, net 2,649 2,253
Gain on sale of securities, net (223) (154)
Loss on sale of other real property owned, net 16 1
Gain on sale of mortgage loans held for sale, net (840) (647)
Origination of mortgage loans held for sale (62,924) (48,140)
Proceeds from sale of mortgage loans held for sale 65,639 45,827
Write-off of investment 250 -
(Increase) decrease in other assets (3,232) 736
Increase (decrease) in other liabilities 2,545 (904)
----------- -----------
Net cash provided by operating activities 10,569 4,195
----------- -----------
Cash flows from investing activities:
Capitalization of mortgage servicing rights (5) (43)
Purchases of premises and equipment (1,128) (1,344)
Net increase in loans (29,452) (10,288)
Proceeds from sales of securities available-for-sale 12,091 6,850
Proceeds from maturities of:
Securities available-for-sale 26,202 73,006
Securities held-to-maturity 301 35
Purchases of securities available-for-sale (25,349) (66,373)
Purchases of securities held-to-maturity (123) (347)
Net cash provided by acquisition 15 606
----------- -----------
Net cash provided by (used in) investing activities (17,448) 2,102
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in deposits 51,408 21,196
Increase (decrease) in repurchase agreements (3,695) 3,268
Decrease in short-term FHLB advances - (15,000)
Increase in long-term FHLB advances 5,000 3,000
Increase in other borrowings 200 -
Proceeds from issuance of common stock 432 294
Purchase of treasury stock (859) (848)
Dividends paid on common stock (674) (590)
----------- -----------
Net cash used in financing activities 51,812 11,318
----------- -----------
Increase in cash and cash equivalents 44,933 17,615
----------- -----------
Cash and cash equivalents at beginning of period 33,096 24,840
----------- -----------
Cash and cash equivalents at end of period $78,029 $42,455
=========== ===========
Additional disclosures of cash flow information:
Cash paid during the period for:
Interest $ 8,165 $16,739
Income Taxes 3,109 562
Loans transferred to real estate owned 1,049 2,402
Dividends reinvested in common stock 913 778
=========== ===========
Notes to Consolidated Financial Statements
(Unaudited)
Summary of Significant Accounting Policies
Basis of Accounting and Consolidation
The unaudited consolidated financial statements include the accounts of
First Mid-Illinois Bancshares, Inc. ("Company") and its wholly-owned
subsidiaries: Mid-Illinois Data Services, Inc. ("MIDS") and First Mid-Illinois
Bank & Trust, N.A. ("First Mid Bank") and its wholly-owned subsidiary First
Mid-Illinois Insurance Services, Inc. ("First Mid Insurance") and The Checkley
Agency, Inc. ("Checkley"). 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 for
a fair presentation of the results of the interim periods ended September 30,
2002, and 2001, and all such adjustments are of a normal recurring nature. The
results of the interim period ended September 30, 2002, are not necessarily
indicative of the results expected for the year ending December 31, 2002.
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 2001 Form 10-K.
Stock Split
On November 16, 2001, the Company effected a three-for-two stock split
in the form of a 50 percent stock dividend. Par value remained at $4 per share.
The stock split increased the Company's outstanding common shares from 2,250,714
to 3,376,071 shares. All 2001 share and per share amounts have been restated
giving retroactive recognition to the stock split.
Recent Accounting Pronouncements
In September 2001, the FASB issued SFAS No. 141, "Business
Combinations," ("SFAS 141") and SFAS No. 142, "Goodwill and Other Intangible
Assets," ("SFAS 142"). SFAS 141 requires that the purchase method of accounting
be used for all business combinations. SFAS 141 also specifies criteria that
intangible assets acquired in a business combination must meet to be recognized
and reported separately from goodwill. SFAS 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead be tested for impairment at least annually in accordance with the
provisions of SFAS 142. SFAS 142 also requires that intangible assets with
finite useful lives be amortized over their respective estimated useful lives to
their estimated residual values, and reviewed for impairment in accordance with
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
The Company adopted the provisions of SFAS 141 as of July 1, 2001, and
SFAS 142 as of January 1, 2002. Goodwill and intangible assets, acquired in
business combinations completed before July 1, 2001, continued to be amortized
and tested for impairment prior to the full adoption of SFAS 142.
Since its adoption of SFAS 142 as of January 1, 2002, the Company was
required to evaluate its existing intangible assets and goodwill that were
acquired in purchase business combinations, and to make any necessary
reclassifications in order to conform with the new classification criteria in
SFAS 141 for recognition separate from goodwill. The Company was also required
to reassess the useful lives and residual values of all intangible assets
acquired, and make any necessary amortization period adjustments by the end of
the first interim period after adoption. If an intangible asset was identified
as having an indefinite useful life, the Company was required to test the
intangible asset for impairment in accordance with the provisions of SFAS 142
within the first interim period. Impairment is measured as the excess of the
carrying value over the fair value of an intangible asset with an indefinite
life. Any impairment loss is measured as of the date of adoption and recognized
as the cumulative effect of a change in accounting principle in the first
interim period.
In connection with the SFAS 142 transitional goodwill impairment
evaluation, SFAS 142 required the Company to perform an assessment of whether
there is an indication that goodwill was impaired as of the date of adoption. To
accomplish this, the Company identified its reporting units and determined the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units
as of January 1, 2002. To the extent the carrying amount of a reporting unit
exceeded the fair value of the reporting unit, an indication would exist that
the reporting unit goodwill might be impaired and the Company would perform the
second step of the transitional impairment test to determine whether a
transitional impairment loss existed. In addition, the Company has chosen
September 30 as the date of its annual testing of goodwill for impairment. The
Company performed the testing of goodwill for impairment as of June 30, 2002 and
September 30, 2002 and determined as of each of the above dates that goodwill
was not impaired. The second step was not required to be completed as the
Company determined that its goodwill was not impaired.
As of January 1, 2002, the date of adoption of SFAS 142, the Company
had unamortized goodwill in the amount of $11.1 million, of which $4 million was
subject to the transition provisions of SFAS 142 and is no longer being
amortized. The remaining $7.1 million is for acquisition of branches whereby the
liabilities assumed were greater than the assets obtained and continues to be
amortized. The Company also had core deposit intangibles of $1.3 million, which
also continue to be amortized. In January 2002, the Company added an additional
$1.9 million of amortizable intangibles as a result of the acquisition of
Checkley. The following table presents gross carrying amount and accumulated
amortization by major intangible asset class as of September 30, 2002 and
December 31, 2001 (in thousands):
9/30/02 12/31/01
--------------------- ---------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Value Amortization Value Amortization
-------- ------------ -------- ------------
Goodwill not subject to amortization $7,054 $3,019 $7,054 $3,019
Goodwill from branch acquisitions 8,755 2,063 8,755 1,696
Core deposit intangibles 2,805 1,734 2,805 1,507
Other intangibles 1,904 127 - -
-------- ------------ -------- ------------
$20,518 $6,943 $18,614 6,222
======== ============ ======== ============
Aggregate amortization for the current year and estimated amortization
expense for each of the five succeeding years is shown in the table below (in
thousands).
Aggregate amortization expense:
For period ended 9/30/02 $721
Estimated amortization expense:
For the period 10/1/02-12/31/02 $242
For year ended 12/31/03 $960
For year ended 12/31/04 $859
For year ended 12/31/05 $840
For year ended 12/31/06 $840
For year ended 12/31/07 $786
The adoption of SFAS 142 resulted in a net income increase of $309,000
or $.09 in basic and diluted earnings per share for the nine months ended
September 30, 2002. For the nine months ended September 30, 2002, amortization
expense related to core deposit intangibles was $228,000, amortization expense
related to other intangibles was $127,000 and amortization expense related to
goodwill from branch acquisitions was $366,000. For the nine months ended
September 30, 2001, amortization expense related to goodwill no longer
amortizable due to adoption of SFAS 142 was $305,000, amortization expense
related to core deposit intangibles was $245,000 and amortization expense
related to goodwill from branch acquisitions was $366,000.
On October 1, 2002, the FASB issued SFAS No. 147, "Acquisitions of
Certain Financial Institutions." This Statement brings all business combinations
involving financial institutions, except mutual enterprises, into the scope of
SFAS 141, "Business Combinations." SFAS 147, which is generally effective as of
October 1, 2002, requires that all acquisitions of financial institutions that
meet the definition of a business, including acquisitions of a part of a
financial institution that meet the definition of a business, be accounted for
in accordance with SFAS 141 and the related intangibles accounted for in
accordance with SFAS 142, "Goodwill and Other Intangible Assets." Accordingly,
the specialized accounting guidance of SFAS 72, "Accounting for Certain
Acquisitions of Banking or Thrift Institutions," will not apply after September
30, 2002. Upon adoption of SFAS 147, if certain criteria are met, unidentifiable
intangible assets will be reclassified to goodwill and will cease being
amortized effective as of the date of adoption of SFAS 142, and previously
issued financial statements will be required to be restated. SFAS 147 also
amends the scope of FASB Statement No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," to include long-term customer-relationship
intangible assets such as depositor-and borrower-relationship intangible assets
and credit cardholder intangible assets. The Company is currently evaluating the
impact of the adoption of SFAS 147 on its financial condition and results of
operations.
Comprehensive Income
The Company's comprehensive income for the three and nine month periods
ended September 30, 2002 and 2001 is as follows:
Three months ended Nine months ended
September 30, September 30,
------------------- -------------------
(In thousands) 2002 2001 2002 2001
--------- --------- --------- ---------
Net income $1,987 $1,692 $5,914 $4,772
Other comprehensive income:
Unrealized gain during the period 1,169 1,126 3,318 3,416
Less realized gain during the period (107) (14) (223) (154)
Tax effect (411) (431) (1,199) (1,264)
--------- --------- --------- ---------
Comprehensive income $2,638 $2,373 $7,810 $6,770
========= ========= ========= =========
Earnings Per Share
A three-for-two common stock split was effected on November 16, 2001,
in the form of a distribution of a 50% stock dividend for the stockholders of
record at the close of business on October 26, 2001. Accordingly, information
with respect to shares of common stock and earnings per share has been restated
for 2001 periods presented to fully reflect the stock split. Income for basic
earnings per share is based on the weighted average number of common shares
outstanding. Diluted EPS is computed using the weighted average number of common
shares outstanding, increased by the assumed conversion of the Company's stock
options, unless anti-dilutive. The components of basic and diluted earnings per
common share for the three and six month periods ended September 30, 2002 and
2001 are as follows:
Three months ended Nine months ended
September 30, September 30,
------------------------- -------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Basic Earnings per Share:
Net income $1,987,000 $1,692,000 $5,914,000 $4,772,000
Weighted average common shares outstanding 3,398,110 3,386,038 3,389,586 3,378,931
============ ============ ============ ============
Basic earnings per common share $ .58 $ .50 $ 1.74 $1.41
============ ============ ============ ============
Diluted Earnings per Share:
Weighted average common shares outstanding 3,398,110 3,386,038 3,389,586 3,378,931
Assumed conversion of stock options 26,897 8,170 24,365 6,781
------------ ------------ ------------ ------------
Diluted weighted average common
shares outstanding 3,425,007 3,394,208 3,413,951 3,385,712
============ ============ ============ ============
Diluted earnings per common share $ .58 $ .50 $ 1.73 $1.41
============ ============ ============ ============
Mergers and Acquisitions
On April 20, 2001, First Mid Bank acquired all of the 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 value as of the acquisition date and the
excess cost over fair value of net assets was recorded as goodwill. The
consolidated financial statements include the results of operations of American
Bank of Illinois since the acquisition date.
On January 29, 2002, the Company acquired all of the issued and
outstanding stock of Checkley, an insurance agency headquartered in Mattoon,
Illinois. Checkley was purchased for cash with a portion ($750,000) paid at
closing and the remainder ($1,000,000) to be paid, pursuant to a promissory
note, over a five-year period ending January 2007. Checkley operates as a
separate subsidiary of the Company and provides customers with commercial
property, casualty, life, auto and home insurance. In order to facilitate this
acquisition, the Company became a financial holding company under the
Gramm-Leach-Bliley Act on December 14, 2001. The results of Checkley's
operations are included in the consolidated financial statements since the
acquisition date.
The following table summarizes the estimated fair value of the assets
acquired and liabilities assumed at the date of acquisition (in thousands):
At January 29, 2002:
- ----------------------------------------------------------
Current assets $643
Property and equipment 76
Intangible assets 1,904
---------------------
Total assets acquired 2,623
---------------------
Current liabilities (771)
Debt (20)
---------------------
Total liabilities (791)
---------------------
Net assets acquired $1,832
=====================
The Company estimates that $1,904,000 of acquired intangible assets
were obtained. The identifiable intangible assets were allocated to customer
lists to be amortized over a period of ten years.
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 as of, and for the periods ended, September
30, 2002 and 2001. 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 September 30, 2002 was $1,987,000
($.58 diluted EPS), an increase of $295,000 from $1,692,000 ($.50 diluted EPS)
for the same period in 2001. Net income for the nine months ended September 30,
2002 was $5,914,000 ($1.73 diluted EPS), an increase of $1,142,000 from
$4,772,000 ($1.41 diluted EPS) for the same period in 2001. The adoption of SFAS
142 resulted in a net income increase of $103,000 or $.03 in basic and diluted
earnings per share for the three months ended September 30, 2002. For the nine
months ended September 30, 2002, net income increased $309,000 or $.09 in basic
and diluted earnings per share.
A summary of the factors that contributed to the changes in net income
is shown in the table below.
2002 vs. 2001
Three months Nine months
(In thousands) Ended Ended
September 30 September 30
---------------- --------------
Net interest income $ 392 $2,243
Other income, including securities transactions 836 1,383
Other expenses (762) (1,738)
Income taxes (171) (746)
---------------- --------------
Increase in net income $ 295 $1,142
================ ==============
The following table shows the Company's annualized performance ratios
for the nine months ended September 30, 2002 and 2001, as compared to the
performance ratios for the year ended December 31, 2001:
September 30, September 30, December 31,
2002 2001 2001
--------------- --------------- ---------------
Return on average assets 1.11% .96% .97%
Return on average equity 11.62% 10.45% 10.56%
Average equity to average assets 9.56% 9.22% 9.20%
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 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):
Nine months Ended Nine months Ended
September 30, 2002 September 30, 2001
------------------------------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------------------------------------------------------------
ASSETS
Interest-bearing deposits $ 4,674 $ 57 1.63% $ 1,499 $ 30 2.69%
Federal funds sold 9,838 117 1.59% 8,889 255 3.83%
Investment securities
Taxable 131,452 4,587 4.65% 117,261 5,260 5.98%
Tax-exempt (1) 28,928 1,502 6.92% 30,635 1,589 6.92%
Loans (2)(3) 479,062 25,317 7.05% 448,357 27,765 8.26%
------------------------------------------------------------
Total earning assets 653,954 31,580 6.44% 606,641 34,899 7.67%
------------------------------------------------------------
Cash and due from banks 18,304 16,873
Premises and equipment 16,464 16,249
Other assets 25,062 23,823
Allowance for loan losses (3,785) (3,593)
---------- -----------
otal assets $709,999 $659,993
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits
Demand deposits $196,577 $ 2,023 1.37% $175,875 $ 3,499 2.65%
Savings deposits 51,213 625 1.63% 40,667 695 2.28%
Time deposits 235,473 6,607 3.74% 249,640 10,520 5.62%
Securities sold under
agreements to repurchase 31,983 257 1.07% 27,688 779 3.75%
FHLB advances 37,440 1,419 5.05% 28,342 1,232 5.79%
Federal funds purchased 400 6 2.00% 301 12 5.20%
Other debt 5,243 131 3.33% 4,325 189 5.81%
------------------------------------------------------------
Total interest-bearing
liabilities 558,329 11,068 2.64% 526,838 16,926 4.28%
------------------------------------------------------------
Non interest-bearing demand deposits 76,837 66,575
Other liabilities 6,965 5,711
Stockholders' equity 67,868 60,869
---------- -----------
Total liabilities & equity $709,999 $659,993
========== ===========
Net interest income (TE) $20,512 $17,973
========== ==========
Net interest spread 3.80% 3.39%
Impact of non-interest
bearing funds .38% .56%
Net yield on interest-
earning assets (TE) 4.18% 3.95%
========== ========
(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 are not material and 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
nine months ended September 30, 2002, as compared to the same period in 2001 (in
thousands):
For the nine months ended September 30,
2002 compared to 2001
Increase / (Decrease)
------------------------------------------
Total Rate/
Change Volume Rate olume (4)
Earning Assets:
Interest-bearing deposits $ 27 $ 64 $ (12) $ (25)
Federal funds sold (138) 27 (149) (16)
Investment securities:
Taxable (673) 636 (1,170) (139)
Tax-exempt (1) (87) (89) 2 -
Loans (2)(3) (2,448) 1,902 (4,069) (281)
------------------------------------------
Total interest income (3,319) 2,540 (5,398) (461)
------------------------------------------
Interest-Bearing Liabilities:
Interest-bearing deposits
Demand deposits (1,476) 411 (1,688) (199)
Savings deposits (70) 180 (198) (52)
Time deposits (3,913) (597) (3,520) 204
Securities sold under
agreements to repurchase (522) 121 (557) (86)
FHLB advances 187 395 (157) (51)
Federal funds purchased (6) 4 (7) (3)
Other debt (58) 40 (80) (18)
------------------------------------------
Total interest expense (5,858) 554 (6,207) (205)
------------------------------------------
Net interest income $2,539 $1,986 $ 809 $ (256)
==========================================
(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 $2,539,000, or
14.1% to $20,512,000 for the nine months ended September 30, 2002, from
$17,973,000 for the same period in 2001. The increase in net interest income was
primarily due to a growth in net interest earning assets and an increase in net
interest spread.
For the nine months ended September 30, 2002, average earning assets
increased by $47,313,000, or 7.8%, and average interest-bearing liabilities
increased $31,491,000, or 6.0%, compared with average balances for the same
period in 2001. Changes in average balances, as a percent of average earnings
assets, are shown below:
< average loans (as a percent of average earnings assets) decreased .6%
to 73.3% for the nine months ended September 30, 2002, from 73.9% for
the same period in 2001.
< average securities (as a percent of average earnings assets) increased
.1% to 24.5% for the nine months ended September 30, 2002, from 24.4%
for the same period in 2001.
Provision for Loan Losses
The provision for loan losses for the three months ended September 30,
2002 and 2001 was $500,000 and $150,000, respectively. The increase in the
provision was a result of an increased risk in the loan portfolio, uncertain
income conditions, and an increase in charge-offs. The Company incurred net
charge-offs of $314,000 for the three months ended September 30, 2002 as
compared to $57,000 for the same period in 2001. The provision for loan losses
for the nine months ended September 30, 2002 and 2001 was $775,000 and $450,000,
respectively. The increase in the provision was a result of an increased risk in
the loan portfolio, uncertain income conditions, and an increase in charge-offs.
For information on loan loss experience and nonperforming loans, see the
"Nonperforming Loans" and "Loan Quality and Allowance for Loan Losses" sections
below.
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 and nine months ended September 30, 2002 and 2001 (in
thousands):
Three months ended Nine months ended
September 30, September 30,
2002 2001 $ Change 2002 2001 $ Change
---------- ---------- ---------- ---------- ---------- ----------
Trust $470 $455 $ 15 $1,398 $1,426 $ (28)
Brokerage 61 62 (1) 195 174 21
Insurance commissions 331 18 313 835 97 738
Service charges 1,092 793 299 2,609 2,309 300
Security gains 107 14 93 223 154 69
Mortgage banking 335 290 45 1,002 764 238
Other 516 444 72 1,413 1,368 45
---------- ---------- ---------- ---------- ---------- ----------
Total other income $2,912 $2,076 $836 $7,675 $6,292 $1,383
========== ========== ========== ========== ========== ==========
Explanations for the three months ended September 30, 2002 as compared
to the same period in 2001:
< Trust revenues increased $15,000 or 3.3% to $470,000 from $455,000.
Trust assets, reported at market value, were $310 million at September
30, 2002 compared to $288 million at September 30, 2001.
< Revenues from brokerage decreased $1,000 or 1.6% to $61,000 from
$62,000.
< Insurance commissions increased $313,000 or 1,738.9% to $331,000 from
$18,000. This increase is due to the acquisition of Checkley in
January 2002.
< Fees from service charges increased $299,000 or 37.7% to $1,092,000
from $793,000. This was primarily the result of increased overdraft
fees after implementation of a new program called Payment Privilege.
Under Payment Privilege, overdrafts up to a limit of $500 are
automatically paid for qualifying customers in exchange for a fee. A
greater number of overdrafts paid has resulted in an increase in fee
income.
< Sales of investment securities resulted in a net gain of $107,000, as
compared to a net gain of $14,000 for the same quarter in 2001. The
net gain in 2002 resulted primarily from the sale of a $1 million
available-for-sale security.
< Mortgage banking income increased $45,000 or 15.5% to $335,000 from
$290,000. This increase was due to a higher number of fixed rate loans
originated and sold by First Mid Bank as a result of lower interest
rates. Loans sold balances are as follows:
< $25.4 million (representing 260 loans) for the 3rd quarter 2002.
< $19.0 million (representing 217 loans) for the 3rd quarter 2001.
First Mid Bank generally releases the servicing rights on loans sold
into the secondary market. Accordingly, capitalized originated mortgage
servicing rights are not material to the consolidated financial statements.
< Other income decreased $72,000 or 16.2% to $516,000 from $444,000.
Explanations for the nine months ended September 30, 2002 as compared
to the same period in 2001:
< Trust revenues decreased $28,000 or 2.0% to $1,398,000 from
$1,426,000. Trust assets, reported at market value, were $310 million
at September 30, 2002 and $288 million at September 30, 2001. However,
approximately 50% of trust revenue is market value dependent. The
overall decline in equity prices in the United States has resulted in
reduced levels of trust revenue. Absent an increase in overall equity
prices, management does not expect increases in trust revenue other
than that generated through new business.
< Revenues from brokerage increased $21,000 or 12.1% to $195,000 from
$174,000. This was primarily due to increased annuity sales.
< Insurance commissions increased $738,000 or 760.8% to $835,000 from
$97,000. This increase is due to the acquisition of Checkley in
January 2002.
< Fees from service charges increased $300,000 or 13.0% to $2,609,000
from $2,309,000. This was primarily the result of increased overdraft
fees after implementation of a new program called Payment Privilege.
Under Payment Privilege, overdrafts up to a limit of $500 are
automatically paid for qualifying customers in exchange for a fee. A
greater number of overdrafts paid has resulted in an increase in fee
income.
< Sales of investment securities resulted in a net gain of $223,000 as
compared to $154,000 for the same period in 2001. Each period had
sales of several securities in the available-for-sale portfolio to
improve the overall portfolio mix and the margin.
< Mortgage banking income increased $238,000 or 31.2% to $1,002,000 from
$764,000. This increase was due to a higher number of fixed rate loans
originated and sold by First Mid Bank as a result of lower interest
rates. Loans sold balances are as follows:
< $64.8 million (representing 695 loans) for the nine months in
2002.
< $45.2 million (representing 520 loans) for the nine months in
2001.
< Other income increased $45,000 or 3.3% to $1,413,000 from $1,368,000.
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 and nine months ended September
30, 2002 and 2001 (in thousands):
Three months ended Nine months ended
September 30, September 30,
---------- ---------- ---------- ---------- ---------- ----------
2002 2001 $ Change 2002 2001 $ Change
---------- ---------- ---------- ---------- ---------- ----------
Salaries and benefits $ 3,242 $ 2,850 $ 392 $ 9,344 $ 8,152 $1,192
Occupancy and equipment 1,043 990 53 3,023 2,899 124
Amortization of goodwill 122 235 (113) 366 671 (305)
Amortization of intangibles 121 78 43 355 245 110
Stationery and supplies 174 164 10 452 501 (49)
Legal and professional fees 230 229 1 726 717 9
Marketing and promotion 140 155 (15) 449 544 (95)
Other operating expenses 1,244 853 391 3,354 2,602 752
---------- ---------- ---------- ---------- ---------- ----------
Total other expense $ 6,316 $ 5,554 $ 762 $18,069 $16,331 $1,738
========== ========== ========== ========== ========== ==========
Explanations for the three months ended September 30, 2002 as compared
to the same period in 2001:
< Salaries and employee benefits, the largest component of other
expense, increased $392,000 or 13.8% to $3,242,000 from $2,850,000.
This increase can be explained by merit increases for continuing
employees and an increase in the number of employees due to the
acquisition of Checkley in January 2002. There were 312 full-time
equivalent employees at September 30, 2002 compared to 293 at
September 30, 2001.
< Occupancy and equipment expense increased $53,000 or 5.4% to
$1,043,000 from $990,000. This increase included building maintenance,
utilities and rent expense for Checkley.
< Amortization of goodwill expense decreased due to the adoption of SFAS
No. 142, "Goodwill and Other Intangible Assets," effective January 1,
2002. Goodwill totaling $4 million at January 1, 2002 is no longer
being amortized. However, the Company continues to amortize goodwill
for acquisition of branches whereby the fair value of liabilities
assumed were greater than the assets obtained, which totaled $7.1
million at January 1, 2002. Amortization of other intangibles expense
increased $43,000 as a result of the acquisition of Checkley
($48,000), partially offset by the reduction of core deposit
intangible expense ($5,000).
< Other operating expenses increased $391,000 or 45.8%. This increase is
mostly the result of $275,000 of consulting fees related to the
payment privilege program implemented in June of 2002.
< All other categories of operating expenses decreased a net of $4,000
or .7% to $544,000 from $548,000.
Explanations for the nine months ended September 30, 2002 as compared
to the same period in 2001:
< Salaries and employee benefits, the largest component of other
expense, increased $1,192,000 or 14.6% to $9,344,000 from $8,152,000.
This increase can be explained by merit increases for continuing
employees and an increase in the number of employees due to the
acquisition of Checkley in January 2002 and American Bank of Illinois
in April 2001.
< Occupancy and equipment expense increased $124,000 or 4.3% to
$3,023,000 from $2,899,000. This increase included building
maintenance, utilities and depreciation expense for all buildings.
< Amortization of goodwill expense decreased due to the adoption of SFAS
No. 142, "Goodwill and Other Intangible Assets," effective January 1,
2002. Goodwill totaling $4 million at January 1, 2002 is no longer
being amortized. However, the Company continues to amortize goodwill
for acquisition of branches whereby the fair value of liabilities
assumed were greater than the assets obtained, which totaled $7.1
million at January 1, 2002. Amortization of other intangibles expense
increased $110,000 as a result of the acquisition of Checkley
($127,000), partially offset by the reduction of core deposit
intangible expense ($17,000).
< Other operating expenses increased $752,000 or 28.9%. This increase is
partially the result of a $250,000 write-off of an investment in a
venture capital fund. During the second quarter, management determined
that the probability of recovery of the investment was remote and,
accordingly, charged off the investment through a direct charge to
earnings. The Company has no other such investments. The increase is
also due to $275,000 of consulting fees related to the payment
privilege program implemented in June of 2002.
< All other categories of operating expenses decreased a net of $135,000
or 7.7% to $1,627,000 from $1,762,000. This decrease is due to higher
expenses in 2001 as a result of the acquisition of American Bank of
Illinois in April 2001.
Income Taxes
Total income tax expense amounted to $2,918,000 (33.0% effective tax
rate) for the nine months ended September 30, 2002, compared to $2,172,000
(31.3% effective tax rate) for the same period in 2001. The increase in the
effective tax rate is due to increased loan interest income, partially offset by
a decrease in interest income from U.S. Treasury securities.
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 September 30, 2002 and December 31, 2001 (in thousands):
September 30, December 31,
2002 2001
---------------- ----------------
Real estate - residential $120,894 $136,965
Real estate - agricultural 47,921 41,922
Real estate - commercial 170,343 152,986
---------------- ----------------
Total real estate - mortgage $339,158 $331,873
Commercial and agricultural 127,106 107,620
Installment 32,364 32,522
Other 1,614 1,228
---------------- ----------------
Total loans $500,242 $473,243
================ ================
At September 30, 2002, the Company had loan concentrations in
agricultural industries of $89.2 million, or 17.8%, of outstanding loans and
$82.6 million, or 17.5%, at December 31, 2001. The Company had no further 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
the Company's focus on real estate lending and a historical strong local housing
market. The balance of real estate loans held for sale amounted to $3,696,000
and $5,571,000 as of September 30, 2002 and December 31, 2001, respectively.
The following table presents the balance of loans outstanding as of
September 30, 2002, by maturities (dollars in thousands):
Maturity (1)
---------------------------------------------
Over 1
One year through Over
or less (2) 5 years 5 years Total
------------ ---------- ---------- ----------
Real estate - residential $ 52,906 $ 64,956 $3,032 $120,894
Real estate - agricultural 8,989 32,335 6,597 47,921
Real estate - commercial 49,161 101,871 19,311 170,343
------------ ---------- ---------- ----------
Total real estate - mortgage $111,056 $199,162 $ 28,940 $339,158
Commercial and agricultural 81,671 41,809 3,626 127,106
Installment 17,211 15,106 47 32,364
Other 281 825 508 1,614
------------ ---------- ---------- ----------
Total loans $210,219 $256,902 $ 33,121 $500,242
============ ========== ========== ==========
(1) Based on scheduled principal repayments. (2) Includes demand loans,
past due loans and overdrafts.
As of September 30, 2002, loans with maturities over one year consisted
of approximately $261,253,000 in fixed rate loans and $28,770,000 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 are defined as: (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 Company's policy is to
cease accrual of interest on all loans that become ninety days past due as to
principal or interest. 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.
The following table presents information concerning the aggregate
amount of nonperforming loans at September 30, 2002 and December 31, 2001 (in
thousands):
September 30, December 31,
2002 2001
--------------- --------------
Nonaccrual loans $3,689 $3,419
Renegotiated loans which are performing
in accordance with revised terms 32 188
--------------- --------------
Total Nonperforming Loans $3,721 $3,607
=============== ==============
At September 30, 2002, approximately $1,842,000 of the nonperforming
loans resulted from collateral dependent loans to two borrowers. The $270,000
increase in nonaccrual loans during the nine months ended September 30, 2002,
resulted from the net of $659,000 of loans transferred to other real estate
owned, $2,175,000 of loans made current or paid-off and $3,104,000 of loans put
on nonaccrual status.
Interest income that would have been reported if nonaccrual and
renegotiated loans had been performing totaled $127,000 for the nine months
ended September 30, 2002 and $247,000 for the year ended December 31, 2001.
Interest income on these loans that was included in income totaled $2,000 and
$16,000 for the same periods.
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 allowance for loan
losses that is adequate but not excessive. 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. Management considers collateral values 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 considers the allowance for loan losses a
critical accounting policy.
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 September 30, 2002 the Company's loan
portfolio included $89.2 million of loans to borrowers whose businesses are
directly related to agriculture. The balance increased by $6.6 million from
$82.6 million at December 31, 2001. While the Company adheres to sound
underwriting practices, including collateralization of loans, any extended
period of low commodity prices, significantly reduced yields on crops and/or
reduced levels of government assistance to the agricultural industry could
result in an increase in the level of problem agriculture loans and potentially
to loan losses within the agricultural portfolio.
Analysis of the allowance for loan losses as of September 30, 2002 and
2001, and of changes in the allowance for the three and nine month periods ended
September 30, 2002 and 2001, is as follows (dollars in thousands):
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Average loans outstanding,
net of unearned income $479,062 $448,357 $479,062 $448,357
Allowance-beginning of period $ 3,713 $ 3,418 $ 3,702 $ 3,262
Balance added through acquisitions - 275 - 275
Charge-offs:
Real estate-mortgage 27 11 169 21
Commercial, financial & agricultural 268 17 326 141
Installment 56 39 144 85
---------- ---------- ---------- ----------
Total charge-offs 351 67 639 247
Recoveries:
Real estate-mortgage 12 - 12 -
Commercial, financial & agricultural 13 5 15 16
Installment 12 5 34 30
---------- ---------- ---------- ----------
Total recoveries 37 10 61 46
---------- ---------- ---------- ----------
Net charge-offs 314 57 578 201
---------- ---------- ---------- ----------
Provision for loan losses 500 150 775 450
---------- ---------- ---------- ----------
Allowance-end of period $ 3,899 $ 3,786 $ 3,899 $ 3,786
========== ========== ========== ==========
Ratio of annualized net charge offs
to average loans .26% .05% .24% .09%
========== ========== ========== ==========
Ratio of allowance for loan losses to
loans outstanding (less unearned
interest at end of period) .78% .81% .78% .81%
========== ========== ========== ==========
Ratio of allowance for loan losses
to nonperforming loans 104.8% 83.2% 104.8% 83.2%
========== ========== ========== ==========
The Company minimizes credit risk by adhering to sound underwriting and
credit review policies. Management and the board of directors of the Company
review these policies at least annually. 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. The board of directors and management review the status of problem loans
and determine the adequacy of the allowance. In addition to internal policies
and controls, regulatory authorities periodically review asset quality and the
overall adequacy of the allowance for loan losses.
Securities
The Company's overall investment objectives are to insulate the
investment portfolio from undue credit risk, maintain adequate liquidity,
insulate capital against changes in market value and control excessive changes
in earnings while optimizing investment performance. 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 September 30, 2002 and December
31, 2001 (in thousands):
September 30, December 31,
2002 2001
------------------------- -------------------------
% of % of
Amount Total Amount Total
-------------- ---------- -------------- ----------
U.S. Treasury securities and obligations
of U.S. government corporations and agencies $ 57,322 39% $ 60,852 38%
Obligations of states and
political subdivisions 27,553 19% 29,211 18%
Mortgage-backed securities 47,042 32% 54,306 34%
Other securities 15,765 11% 16,591 10%
-------------- ---------- -------------- ----------
Total securities $147,682 100% $160,960 100%
============== ========== ============== ==========
At September 30, 2002, the Company's investment portfolio showed, as a
percentage of total securities, an increase in other securities and in
mortgage-backed 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 September 30, 2002 and December 31, 2001
were as follows (in thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ -----------
September 30, 2002
Available-for-sale:
U.S. Treasury securities and obligations
of U.S. government corporations & agencies $ 57,322 $1,764 $ (25) $ 59,061
Obligations of states and political
subdivisions 25,635 1,443 - 27,078
Mortgage-backed securities 47,042 815 - 47,857
Federal Home Loan Bank stock 3,226 - - 3,226
Other securities 12,540 328 (22) 12,846
------------ ------------ ------------ -----------
Total available-for-sale $145,765 $ 4,350 $ (47) $150,068
============ ============ ============ ===========
Held-to-maturity:
Obligations of states and political
subdivisions $ 1,917 $ 40 $ - $ 1,957
============ ============ ============ ===========
December 31, 2001
Available-for-sale:
U.S. Treasury securities and obligations
of U.S. government corporations & agencies $ 60,852 $ 1,165 $(181) $ 61,836
Obligations of states and political
subdivisions 27,140 247 (212) 27,175
Mortgage-backed securities 54,306 427 (242) 54,491
Federal Home Loan Bank stock 3,102 - - 3,102
Other securities 13,489 23 (20) 13,492
------------ ------------ ------------ -----------
Total available-for-sale $158,889 $ 1,862 $(655) $160,096
============ ============ ============ ===========
Held-to-maturity:
Obligations of states and political
subdivisions $ 2,071 $ 70 $ (5) $ 2,136
============ ============ ============ ===========
The following table indicates the expected maturities of investment
securities classified as available-for-sale and held-to-maturity, presented at
amortized cost, at September 30, 2002 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
(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 $5,459 $ 50,044 $ 1,000 $ 819 $ 57,322
Obligations of state and
political subdivisions - 6,190 11,660 7,785 25,635
Mortgage-backed securities 11,169 35,873 - - 47,042
Federal Home Loan Bank stock - - - 3,226 3,226
Other securities - - - 12,540 12,540
---------- ---------- ---------- --------- ----------
Total Investments $16,628 $92,107 $12,660 $24,370 $145,765
========== ========== ========== ========= ==========
Weighted average yield 3.98% 4.44% 4.67% 5.49% 4.58%
Full tax-equivalent yield 3.98% 4.56% 6.46% 6.20% 4.93%
========== ========== ========== ========= ==========
Held-to-maturity:
Obligations of state and
political subdivisions $ 225 $ 545 $ 565 $ 582 $ 1,917
========== ========== ========== ========= ==========
Weighted average yield 5.49% 5.22% 5.57% 5.41% 5.41%
Full tax-equivalent yield 7.96% 7.55% 8.07% 7.84% 7.84%
========== ========== ========== ========= ==========
The weighted average yields are calculated on the basis of the
amortized cost and effective yields weighted for the scheduled maturity of each
security. 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 September
30, 2002.
Investment securities carried at approximately $132,434,000 and
$133,208,000 at September 30, 2002 and December 31, 2001, 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 earning assets is substantially provided by a
combination of consumer, commercial and public fund deposits. The Company
continues to focus its strategies and emphasis on retail core deposits, the
major component of funding sources. The following table sets forth the average
deposits and weighted average rates for the nine months ended September 30, 2002
and for the year ended December 31, 2001 (dollars in thousands):
September 30, December 31,
2002 2001
--------------------- ---------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
---------- ---------- ---------- -----------
Demand deposits:
Non-interest bearing $ 76,837 - $ 69,020 -
Interest bearing 196,577 1.37% 182,404 2.40%
Savings 51,213 1.63% 41,437 2.23%
Time deposits 235,473 3.74% 247,348 5.45%
---------- ---------- ---------- -----------
Total average deposits $560,100 2.20% $540,209 3.48%
========== ========== ========== ===========
The following table sets forth the maturity of time deposits of
$100,000 or more at September 30, 2002 and December 31, 2001 (in thousands):
September 30, December 31,
2002 2001
----------------------------------
3 months or less $ 31,815 $ 25,503
Over 3 through 6 months 23,755 20,228
Over 6 through 12 months 19,618 10,913
Over 12 months 27,270 4,794
----------------------------------
Total $102,458 $ 61,438
==================================
Repurchase Agreements and Other Borrowings
Securities sold under agreements to repurchase are short-term
obligations of First Mid Bank. First Mid Bank collateralizes these obligations
with certain government securities that 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. Other
borrowings consist of Federal Home Loan Bank ("FHLB") advances, federal funds
purchased, and loans (short-term or long-term debt) that the Company has
outstanding.
Information relating to securities sold under agreements to repurchase
and other borrowings as of September 30, 2002 and December 31, 2001 is presented
below (in thousands):
September 30, December 31,
2002 2001
--------------- -------------
Securities sold under agreements to repurchase $35,184 $38,879
Federal Home Loan Bank advances:
Fixed term - due in one year or less 8,000 -
Fixed term - due after one year 30,300 33,300
Debt:
Loans due in one year or less 4,525 4,325
Loans due after one year 800 -
--------------- -------------
Total $78,809 $76,504
=============== =============
Average interest rate at end of period 3.13% 3.15%
Maximum Outstanding at any Month-end
Securities sold under agreements to repurchase $39,086 $40,646
Federal Home Loan Bank advances:
Overnight 400 12,800
Fixed term - due in one year or less 8,000 5,000
Fixed term - due after one year 30,300 28,300
Federal funds purchased 3,250 2,850
Debt:
Loans due in one year or less 4,564 4,325
Loans due after one year 800 -
--------------- -------------
Total $86,400 $93,921
=============== =============
Averages for the Period (YTD)
Securities sold under agreements to repurchase $31,983 $29,547
Federal Home Loan Bank advances:
Overnight 696 2,161
Fixed term - due in one year or less 6,443 3,356
Fixed term - due after one year 30,300 23,349
Federal funds purchased 400 236
Debt:
Loans due in one year or less 4,525 4,325
Loans due after one year 718 -
--------------- -------------
Total $75,065 $62,974
=============== =============
Average interest rate during the period 3.22% 4.47%
FHLB advances represent borrowings by First Mid Bank to economically
fund loan demand. The fixed term advances consists of $38.3 million as follows:
< $3 million advance at 6.58% with a 2-year maturity, due 10/10/02
< $5 million advance at 2.54% with a 1-year maturity, due 02/28/03
< $5 million advance at 3.45% with a 2-year maturity, due 02/28/04
< $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
< $5 million advance at 5.34% with a 5-year maturity, due 12/14/05
< $3 million advance at 5.98% with a 10-year maturity, due 03/01/11
< $5 million advance at 4.33% with a 10-year maturity, due 11/23/11
Other debt, both short-term and long-term, represents the outstanding loan
balances for the Company. At September 30, 2002, outstanding loan balances
include $4,325,000 on a revolving credit agreement with The Northern Trust
Company with a floating interest rate of 1.25% over the Federal Funds rate (3.0%
as of September 30, 2002) and set to mature November 19, 2002. The balance also
includes a $1 million promissory note resulting from the acquisition of Checkley
with an annual interest rate equal to the prime rate listed in the money rate
section of the Wall Street Journal (4.75% as of September 30, 2002) and
principal payable annually over five years, with a final maturity of January
2007.
Interest Rate Sensitivity
The Company seeks to maximize its net interest margin while maintaining
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, a variable over which
management has no control. Interest rate risk, or sensitivity, arises when the
maturity or repricing characteristics of interest bearing assets differ
significantly from the maturity or repricing characteristics of interest bearing
liabilities.
The Company monitors its interest rate sensitivity position to maintain
a balance between rate sensitive assets and rate sensitive liabilities. This
balance serves to limit the adverse effects of changes in interest rates. The
Company's asset/liability management committee oversees the interest rate
sensitivity position and directs the overall allocation of funds.
In the banking industry, a traditional way to measure potential net
interest income exposure to changes in interest rates is through a technique
known as "static GAP" analysis which measures the cumulative differences between
the amounts of assets and liabilities maturing or repricing at various
intervals. By comparing the volumes of interest bearing assets and liabilities
that have contractual maturities and repricing points at various times in the
future, management can gain insight into the amount of interest rate risk
imbedded in the balance sheet.
The following table sets forth the Company's interest rate repricing
gaps for selected maturity periods at September 30, 2002 (in thousands):
Number of Months Until Next Repricing Opportunity
0-1 1-3 3-6 6-12 12+
---------- ------------ ------------ ---------- ---------
Interest earning assets:
Federal funds sold $54,704 $ - $ - $ - $ -
Taxable investment securities 15,807 18,094 11,324 25,249 52,516
Nontaxable investment securities - 782 105 589 27,519
Loans 122,614 26,220 50,735 62,899 237,774
---------- ------------ ------------ ---------- ---------
Total $193,125 $ 45,096 $ 62,164 $ 88,737 $317,809
---------- ------------ ------------ ---------- ---------
Interest bearing liabilities:
Savings and N.O.W. accounts 103,285 661 1,061 2,269 78,567
Money market accounts 28,398 1,003 1,505 2,853 49,322
Other time deposits 30,111 36,186 51,835 57,025 81,076
Short-term borrowings/debt 38,184 - 9,540 - -
Long-term borrowings/debt - - - - 31,100
---------- ------------ ------------ ---------- ---------
Total $ 199,978 $ 37,850 $ 63,941 $ 62,147 $240,065
---------- ------------ ------------ ---------- ---------
Periodic GAP $ (6,853) $ 7,246 $(1,777) $ 26,590 $77,744
---------- ------------ ------------ ---------- ---------
Cumulative GAP $ (6,853) $ 393 $ (1,384) $ 25,206 $102,950
========== ============ ============ ========== =========
GAP as a % of interest earning assets:
Periodic (1.0%) 1.0% (.3%) 3.8% 11.0%
Cumulative (1.0%) .1% (.2%) 3.6% 14.6%
========== ============ ============ ========== =========
The static GAP analysis shows that at September 30, 2002, the Company
was asset sensitive, on a cumulative basis, through the twelve-month time
horizon. This indicates that future increases in interest rates, if any, could
have a positive effect on net interest income.
There are several ways the Company measures and manages the exposure to
interest rate sensitivity, static GAP analysis being one. The Company's asset
liability management committee (ALCO) also uses other financial models to
project interest income under various rate scenarios and prepayment/extension
assumptions consistent with the bank's historical experience and with known
industry trends. ALCO meets at least monthly to review the Company's exposure to
interest rate changes as indicated by the various techniques and to make
necessary changes in the composition terms and/or rates of the assets and
liabilities. Based on all information available, management does not believe
that changes in interest rates which might reasonably be expected to occur in
the next twelve months will have a material, adverse effect on the Company's net
interest income.
Capital Resources
At September 30, 2002, the Company's stockholders' equity had increased
$7,517,000 or 11.8% to $71,442,000 from $63,925,000 as of December 31, 2001.
During the first nine months of 2002, net income contributed $5,914,000 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 $1,896,000, net of tax.
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Bank holding companies follow
minimum regulatory requirements established by the Board of Governors of the
Federal Reserve System ("Federal Reserve System"), 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 September 30, 2002 and December 31, 2001, the Company and First Mid
Bank have met all capital adequacy requirements.
As of September 30, 2002, 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 categorization.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- -------------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
---------- --------- ---------- --------- -------- --------
September 30, 2002
Total Capital
(to risk-weighted assets)
Company $59,123 11.28% $41,934 > 8.00% N/A N/A
-
First Mid Bank 59,788 11.55% 41,401 > 8.00% $51,752 >10.00%
- -
Tier 1 Capital
(to risk-weighted assets)
Company 55,233 10.54% 20,967 > 4.00% N/A N/A
-
First Mid Bank 55,889 10.80% 20,701 > 4.00% 31,051 > 6.00%
- -
Tier 1 Capital
(to average assets)
Company 55,233 7.53% 29,321 > 4.00% N/A N/A
-
First Mid Bank 55,889 7.88% 28,356 > 4.00% 35,445 > 5.00%
- -
December 31, 2001
Total Capital
(to risk-weighted assets)
Company $54,498 11.23% $38,810 > 8.00% N/A N/A
-
First Mid Bank 54,139 11.24% 38,521 > 8.00% $48,152 >10.00%
- -
Tier 1 Capital
(to risk-weighted assets)
Company 50,796 10.47% 19,405 > 4.00% N/A N/A
-
First Mid Bank 50,437 10.47% 19,261 > 4.00% 28,891 > 6.00%
- -
Tier 1 Capital
(to average assets)
Company 50,796 7.34% 27,669 > 4.00% N/A N/A
-
First Mid Bank 50,437 7.36% 27,427 > 4.00% 34,284 > 5.00%
- -
Banks and financial holding companies and bank holding companies are
expected to operate at or above the minimum capital requirements. These ratios
are in excess of regulatory minimums and allow the Company to operate without
capital adequacy concerns.
Stock Plans
Participants may purchase Company stock under the following four plans
of the Company: 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 2001 Form 10-K.
On August 5, 1998, the Company announced a stock repurchase program of
up to 3% of its common stock. In March 2000, the Board approved the repurchase
of an additional 5% of the Company's common stock. In September 2001, the Board
approved the repurchase of $3 million of additional shares of the Company's
common stock. In August 2002, the Board approved the repurchase of $5 million of
additional shares of the Company's common stock, bringing the aggregate total to
8% of the Company's common stock plus $8 million of additional shares. During
the nine-month period ending September 30, 2002, the Company repurchased 33,654
shares (.99%) at a total price of $859,000. Since 1998, the Company has
repurchased a total of 207,870 shares (6.1%) at a total price of $6,182,000. As
of September 30, 2002, the Company was authorized per all repurchase programs to
purchase an additional 357,233 shares. Treasury stock is further affected by
activity in the Deferred Compensation Plan.
Liquidity
Liquidity represents the ability of the Company and its subsidiaries to
meet all present and future financial obligations arising in the daily
operations of the business. Financial obligations consist of the need for funds
to meet extensions of credit, deposit withdrawals and debt servicing. The
Company's liquidity management focuses on the ability to obtain funds
economically through assets that may be converted into cash at minimal costs or
through other sources. The Company's other sources for cash include overnight
Federal Fund lines, Federal Home Loan Bank advances, deposits of the State of
Illinois, the ability to borrow at the Federal Reserve Bank of Chicago, and the
Company's operating line of credit with The Northern Trust Company. Details for
the sources include:
< First Mid Bank has $17 million available in overnight Federal Fund
lines, including $10 million from Harris Trust and Savings Bank of
Chicago and $7 million from The Northern Trust Company. Availability
of the funds is subject to the First Mid Bank's meeting minimum
regulatory capital requirements for total capital to risk-weighted
assets and tier 1 capital to total assets. As of September 30, 2002,
the First Mid Bank's ratios of total capital to risk-weighted assets
of 11.55% and tier 1 capital to total assets of 7.88% exceeded minimum
regulatory requirements.
< First Mid Bank can also borrow from the Federal Home Loan Bank as a
source of liquidity. Availability of the funds is subject to the
pledging of collateral to the Federal Home Loan Bank. Collateral that
can be pledged includes one-to-four family residential real estate
loans and securities. At September 30, 2002, the excess collateral at
the Federal Home Loan Bank will support approximately $16 million of
additional advances.
< First Mid Bank also receives deposits from the State of Illinois. The
receipt of these funds is subject to competitive bid and requires
collateral to be pledged at the time of placement.
< First Mid Bank is also a member of the Federal Reserve System and can
borrow funds provided that sufficient collateral is pledged.
< In addition, the Company has a revolving credit agreement in the
amount of $10 million with The Northern Trust Company. The Company has
an outstanding balance of $4,325,000 as of September 30, 2002, and
$5,675,000 in available funds. The credit agreement matures on
November 19, 2002. The agreement contains requirements for the Company
and First Mid Bank to maintain various operating and capital ratios
and also 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. The Company and First Mid Bank were in
compliance with the existing covenants at September 30, 2002.
Management monitors its expected liquidity requirements carefully,
focusing primarily on cash flows from:
< lending activities, including loan commitments, letters of credit and
mortgage prepayment assumptions.
< deposit activities, including seasonal demand of private and public
funds.
< investing activities, including prepayments of mortgage-backed
securities and call provisions on U.S. Government treasuries and
agency securities.
< operating activities, including scheduled debt repayments and
dividends to shareholders.
The following table summarizes significant contractual obligations and
other commitments at September 30, 2002 (in thousands):
Time Operating
Deposits Borrowings* Leases Total
------------ ------------- ----------- ------------
2002 $178,947 $59,809 $81 $238,837
2003 49,386 5,200 316 54,902
2004 16,769 5,200 304 22,273
2005 3,359 200 253 3,812
2006 12,226 5,200 227 17,653
Thereafter 266 3,200 1,519 4,985
------------ ------------- ----------- ------------
Total $260,953 $78,809 $2,700 $342,462
============ ============= =========== ============
Commitments to extend credit $ 81,087
*Borrowings included at earlier of call date or maturity
For the nine-month period ended September 30, 2002, net cash of $10.6
million and $51.8 million was provided from operating activities and financing
activities, respectively, while investing activities used net cash of $17.4
million. Thus, cash and cash equivalents increased by $45.0 million since
year-end 2001. Generally, during 2002, the decreases in deposits and customer
repurchase agreements due to seasonal outflow reduced cash balances. Also,
declines in residential real estate loan balances due to the low rate
environment were greater than the growth in commercial loans and securities
since year-end 2001.
Management believes that it has adequate sources of liquidity to meet
its contractual obligations as well as to provide for contingencies that might
reasonably be expected to occur.
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 affected 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 to offset these potential
effects over time.
Subsequent Events
On October 25, 2002, the Company increased its revolving credit
agreement with The Northern Trust Company from $10 million to $15 million. An
additional $5 million was drawn on the line making the outstanding balance
$9,325,000. The additional borrowings were utilized to fund the following share
repurchase activity.
On November 1, 2002, the Company acquired, as treasury stock, a total
of 200,000 shares of outstanding common stock from two shareholders who are the
sisters of a Director of the Company pursuant to privately negotiated
transactions. Total consideration for these share repurchases amounted to
$5,500,000. This transaction is more fully described in a Form 8-K filed by the
Company on November 1, 2002.
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, 2001. 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, 2001.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. The Company's Chief
Executive Officer and Chief Financial Officer have evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of a date within 90 days prior to filing date
of this quarterly report (the "Evaluation Date"). Based on such evaluation, such
officers have concluded that, as of the Evaluation Date, the Company's
disclosure controls and procedures are effective in bringing to their attention
on a timely basis material information relating to the Company (including its
consolidated subsidiaries) required to be included in the Company's periodic
filings under the Exchange Act.
(b) Changes in Internal Controls. Since the Evaluation Date, there have not been
any significant changes in the Company's internal controls or in other factors
that could significantly affect such controls.
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.
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 that follows the Signature Page and immediately
precedes the exhibits filed.
(b) Reports on Form 8-K:
Form 8-K was filed by the Company on July 24, 2002 regarding plans of First
Mid Bank to open new banking centers in Champaign and Maryville, Illinois, which
are subject to regulatory approval.
Form 8-K was filed by the Company on November 1, 2002 regarding the
Company's acquisition, as treasury stock, of 200,000 shares of outstanding
common stock.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST MID-ILLINOIS BANCSHARES, INC.
(Registrant)
/s/ William S. Rowland /s/ Michael L. Taylor
- -------------------------------------- --------------------------------------
William S. Rowland Michael L. Taylor
President and Chief Executive Officer Chief Financial Officer
Dated: November 14, 2002
-----------------------
CERTIFICATION
I, William S. Rowland, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Mid-Illinois
Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date November 14, 2002
By /s/ William S. Rowland
-----------------------------------------
William S.Rowland
President and Chief Executive Officer
CERTIFICATION
I, Michael L. Taylor, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Mid-Illinois
Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date November 14, 2002
By /s/ Michael L. Taylor
---------------------------------
Michael L. Taylor
Chief Financial Officer
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 7)
99.1 President and Chief Executive Officer Certification pursuant to 18
U.S.C. section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Chief Financial Officer Certification pursuant to 18 U.S.C. section
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act
of 2002
Exhibit 99.1
Certification pursuant to
18 U.S.C. section 1350,
as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of First Mid-Illinois
Bancshares, Inc. (the "Company") on Form 10-Q for the period ending September
30, 2002 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, William S. Rowland, President and Chief Executive Officer of
the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss.
906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Date: November 14, 2002 /s/ William S. Rowland
-------------------------------------
William S. Rowland
President and Chief Executive Officer
Exhibit 99.2
Certification pursuant to
18 U.S.C. section 1350,
as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of First Mid-Illinois
Bancshares, Inc. (the "Company") on Form 10-Q for the period ending September
30, 2002 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Michael L. Taylor, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Date: November 14, 2002 s/ Michael L. Taylor
--------------------------------------------
Michael L. Taylor
Chief Financial Officer