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 March 31, 2005
Commission file number: 0-13368
FIRST MID-ILLINOIS BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 37-1103704
(State of incorporation) (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 registrant (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 registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) YES [X] NO [ ]
As of May 4, 2005, 4,443,049 common shares, $4.00 par value, were outstanding.
PART I
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets (unaudited) March 31, December 31,
(In thousands, except share data) 2005 2004
------------- ------------
Assets
Cash and due from banks:
Non-interest bearing $ 16,410 $ 19,119
Interest bearing 3,641 1,985
Federal funds sold 8,475 2,450
------------- ------------
Cash and cash equivalents 28,526 23,554
Investment securities:
Available-for-sale, at fair value 167,101 168,821
Held-to-maturity, at amortized cost (estimated fair
value of $1,475 and $1,598 at March 31, 2005
and December 31, 2004, respectively) 1,432 1,552
Loans 593,297 597,849
Less allowance for loan losses (4,737) (4,621)
------------- ------------
Net loans 588,560 593,228
Premises and equipment, net 15,115 15,227
Accrued interest receivable 4,865 5,405
Goodwill, net 9,034 9,034
Intangible assets, net 3,204 3,346
Other assets 5,849 6,561
------------- ------------
Total assets $823,686 $ 826,728
============= ============
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing $ 84,738 $ 85,524
Interest bearing 552,897 564,716
------------- ------------
Total deposits 637,635 650,240
Accrued interest payable 1,463 1,506
Securities sold under agreements to repurchase 65,715 59,835
Junior subordinated debentures 10,310 10,310
Other borrowings 34,700 29,900
Other liabilities 4,027 5,783
------------- ------------
Total liabilities 753,850 757,574
------------- ------------
Stockholders' equity:
Common stock, $4 par value; authorized 18,000,000
shares; issued 5,604,073 shares in 2005 and
5,578,897 shares in 2004 22,416 22,316
Additional paid-in capital 18,522 17,845
Retained earnings 55,697 53,259
Deferred compensation 2,332 2,204
Accumulated other comprehensive income (361) 623
Less treasury stock at cost, 1,160,875 shares
in 2005 and 1,121,546 shares in 2004 (28,770) (27,093)
------------- ------------
Total stockholders' equity 69,836 69,154
------------- ------------
Total liabilities and stockholders' equity $823,686 $826,728
============= ============
See accompanying notes to unaudited consolidated financial statements.
Consolidated Statements of Income (unaudited)
(In thousands, except per share data)
Three months ended March 31,
2005 2004
--------------- ------------
Interest income:
Interest and fees on loans $ 8,782 $ 8,167
Interest on investment securities 1,563 1,515
Interest on federal funds sold 69 39
Interest on deposits with other financial institutions 10 6
--------------- ------------
Total interest income 10,424 9,727
Interest expense:
Interest on deposits 2,515 2,138
Interest on securities sold under agreements
to repurchase 283 72
Interest on subordinated debentures 140 37
Interest on other borrowings 411 440
--------------- ------------
Total interest expense 3,349 2,687
--------------- ------------
Net interest income 7,075 7,040
Provision for loan losses 187 187
--------------- ------------
Net interest income after provision for loan losses 6,888 6,853
Other income:
Trust revenues 636 616
Brokerage commissions 97 110
Insurance commissions 511 430
Service charges 1,034 1,124
Securities gains, net 173 -
Mortgage banking revenue 153 94
Other 572 524
--------------- ------------
Total other income 3,176 2,898
Other expense:
Salaries and employee benefits 3,474 3,338
Net occupancy and equipment expense 1,036 1,073
Amortization of other intangible assets 142 175
Stationery and supplies 139 134
Legal and professional 386 276
Marketing and promotion 123 141
Other 1,006 1,031
--------------- ------------
Total other expense 6,306 6,168
--------------- ------------
Income before income taxes 3,758 3,583
Income taxes 1,323 1,194
--------------- ------------
Net income $ 2,435 $ 2,389
=============== ============
Per share data:
Basic earnings per share $ 0.55 $ 0.52
Diluted earnings per share $ 0.54 $ 0.51
=============== ============
See accompanying notes to unaudited consolidated financial statements.
Consolidated Statements of Cash Flows (unaudited) Three months ended
(In thousands) March 31,
2005 2004
---------- -----------
Cash flows from operating activities:
Net income $ 2,435 $ 2,389
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 187 187
Depreciation, amortization and accretion, net 384 718
Gain on sale of securities, net (173) -
Loss on sale of other real property owned, net 67 10
Gain on sale of mortgage loans held for sale, net (183) (109)
Origination of mortgage loans held for sale (12,145) (8,524)
Proceeds from sale of mortgage loans held for sale 13,767 8,312
Decrease in other assets 1,612 2,140
Decrease in other liabilities (726) (596)
---------- -----------
Net cash provided by operating activities 5,225 4,527
---------- -----------
Cash flows from investing activities:
Capitalization of mortgage servicing rights - (1)
Purchases of premises and equipment (254) (234)
Net increase in loans 3,042 2,200
Proceeds from sales of other real property owned 289 17
Proceeds from sales of securities available-for-sale 19,667 -
Proceeds from maturities of securities available-for-sale 18,067 29,397
Proceeds from maturities of securities held-to-maturity 120 110
Purchases of securities available-for-sale (37,258) (10,064)
Purchases of securities held-to-maturity (73) -
---------- -----------
Net cash provided by investing activities 3,600 21,425
---------- -----------
Cash flows from financing activities:
Net (decrease) increase in deposits (12,605) 8,591
Increase (decrease) in repurchase agreements 5,880 (11,871)
Proceeds from FHLB advances 8,000 -
Repayment of FHLB advances (5,000) (5,000)
Issuance of junior subordinated debentures - 10,000
Proceeds from short-term debt 2,000 4,675
Repayment of short-term debt (200) (9,200)
Proceeds from issuance of common stock 353 337
Purchase of treasury stock (1,566) (8,376)
Dividends paid on common stock (715) (550)
---------- -----------
Net cash used in financing activities (3,853) (11,394)
---------- -----------
Increase in cash and cash equivalents 4,972 14,558
Cash and cash equivalents at beginning of period 23,554 24,949
---------- -----------
Cash and cash equivalents at end of period $28,526 $39,507
========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 3,392 $2,719
Income taxes 232 149
Supplemental disclosures of noncash investing and financing activities
Loans transferred to real estate owned - 61
Dividends reinvested in common stock 355 705
Net tax benefit related to option and deferred compensation plans 87 36
Notes to Consolidated Financial Statements
(unaudited)
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"), The Checkley Agency, Inc.
("Checkley") and First Mid-Illinois Bank & Trust, N.A. ("First Mid Bank"). All
significant intercompany 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 March 31, 2005 and 2004, and all such adjustments are
of a normal recurring nature. Certain amounts in the prior year's consolidated
financial statements have been reclassified to conform to the March 31, 2005
presentation and there was no impact on net income or stockholders' equity. The
results of the interim period ended March 31, 2005 are not necessarily
indicative of the results expected for the year ending December 31, 2005. The
Company operates as a one-segment entity for financial reporting purposes.
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 U.S. generally accepted accounting
principles for complete financial statements and related footnote disclosures.
These financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's 2004 Annual
Report on Form 10-K.
Website
The Company maintains a website at www.firstmid.com. All periodic and current
reports of the Company and amendments to these reports filed with the Securities
and Exchange Commission ("SEC") can be accessed, free of charge, through this
website as soon as reasonably practicable after these materials are filed with
the SEC.
Stock Split
On July 16, 2004, the Company effected a three-for-two stock split in the form
of a 50% stock dividend for all shareholders of record as of July 6, 2004. Par
value remained at $4 per share. All current and prior period share and per share
amounts have been restated giving retroactive recognition to the stock split.
Recent Accounting Pronouncements
On December 16, 2003, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 03-3, "Accounting for Certain Loans or
Debt Securities Acquired in a Transfer" ("SOP 03-3"). SOP 03-3 provides guidance
on the accounting for differences between contractual and expected cash flows
from the purchaser's initial investment in loans or debt securities acquired in
a transfer, if those differences are attributable, at least in part, to credit
quality. Among other things, SOP 03-3: (1) prohibits the recognition of the
excess of contractual cash flows over expected cash flows as an adjustment of
yield, loss accrual, or valuation allowance at the time of purchase; (2)
requires that subsequent increases in expected cash flows be recognized
prospectively through an adjustment of yield; and (3) requires the subsequent
decreases in expected cash flows be recognized as an impairment. In addition,
SOP 03-3 prohibits the creation or carrying over of a valuation allowance in the
initial accounting of all loans within its scope that are acquired in a
transfer. SOP 03-3 becomes effective for loans or debt securities acquired in
fiscal years beginning after December 15, 2004. The adoption of the requirements
of SOP 03-3 did not have any impact on the Company's financial position or
results of operations.
In March 2004, the FASB reached a consensus on Emerging Issues Task Force Issue
No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments" ("EITF 03-1"). EITF 03-1 provides guidance for determining
when an investment is impaired and whether the impairment is other than
temporary. EITF 03-01 also incorporates into its consensus the required
disclosures about unrealized losses on investments announced by the EITF in late
2003 and adds new disclosure requirements relating to cost-method investments.
The new disclosure requirements are effective for annual reporting periods
ending June 15, 2004 and the new impairment accounting guidance was to become
effective for reporting periods beginning June 15, 2004. In September 2004, the
FASB delayed the effective date of EITF 03-1 for measurement and recognition of
impairment losses until implementation guidance is issued. The Company does not
expect the adoption of impairment guidance contained in EITF 03-1 to have a
material impact on its financial position or results of operations.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29, "Accounting for Nonmonetary Assets"
("SFAS 153"). SFAS 153 amends the principle that exchanges of nonmonetary assets
should be measured based on the fair value of the assets exchanged and more
broadly provides for exceptions regarding exchanges of nonmonetary assets that
do not have commercial substance. The provisions of this Statement are effective
for nonmonetary asset exchanges occurring in fiscal periods beginning after June
15, 2005. The Company does not expect the requirements of SFAS 153 to have a
material impact on its financial position or results of operations.
In December 2004, the FASB issued SFAS No. 123 (revised), "Accounting for
Stock-Based Compensation" ("SFAS 123R"). SFAS 123R establishes accounting
requirements for share-based compensation to employees and carries forward prior
guidance on accounting for awards to non-employees. SFAS 123R requires an entity
to recognize compensation expense based on an estimate of the number of awards
expected to actually vest, exclusive of awards expected to be forfeited. The
provisions of SFAS 123R will become effective January 1, 2006 for all equity
awards granted after the effective date, as well as the unvested portion of all
existing awards. The Company is evaluating the impact of SFAS 123R on its
financial position and results of operations.
In May 2004, the FASB issued FASB Staff Position on Financial Accounting
Standard 106-2, "Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003" ("FSP FAS 106-2").
FSP FAS 106-2 provides guidance on the accounting for the effects of the
Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("the
Act"); the Act was signed in law on December 8, 2003. Under the Act, a subsidy
is available to sponsors of postretirement health care plans whose benefits are
actuarially equivalent to Medicare Part D. The requirements of FSP FAS 106-2 did
not have any impact on the Company's financial position or results of
operations.
Comprehensive Income
The Company's comprehensive income for the three-months ended March 31, 2005 and
2004 was as follows (in thousands):
Three months ended
March 31,
-------------------------
2005 2004
------------ ------------
Net income $2,435 $2,389
------------ ------------
Other comprehensive income:
Unrealized gain (loss) during the period (1,441) 779
Less realized gain during the period (173) -
Tax effect 630 (302)
------------ ------------
Comprehensive income $1,451 $2,866
============ ============
Earnings Per Share
A three-for-two common stock split was effected on July 16, 2004, in the form of
a 50% stock dividend for the stockholders of record at the close of business on
July 6, 2004. Accordingly, information with respect to shares of common stock
and earnings per share has been restated for current and prior periods presented
to fully reflect the stock split. Basic earnings per share ("EPS") is calculated
as net income divided by 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-months ended March 31, 2005 and 2004 were as follows:
Three months ended
March 31,
------------------------
2005 2004
------------ -----------
Basic Earnings per Share:
Net income $2,435,000 $2,389,000
Weighted average common shares outstanding 4,450,359 4,594,637
============ ===========
Basic earnings per common share $ .55 $ .52
============ ===========
Diluted Earnings per Share:
Weighted average common shares outstanding 4,450,359 4,594,637
Assumed conversion of stock options 93,116 81,396
------------ -----------
Diluted weighted average common shares outstanding 4,543,475 4,676,033
============ ===========
Diluted earnings per common share $ .54 $ .51
============ ===========
Goodwill and Intangible Assets
The Company has goodwill from business combinations, intangible assets from
branch acquisitions, identifiable intangible assets assigned to core deposit
relationships and customer lists of Checkley, and intangible assets arising from
the rights to service mortgage loans for others.
The following table presents gross carrying value and accumulated amortization
by major intangible asset class as of March 31, 2005 and December 31, 2004 (in
thousands):
March 31, 2005 December 31, 2004
------------------------------ -----------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Value Amortization Value Amortization
------------- ---------------- -------------- --------------
Goodwill not subject to amortization
(effective 1/1/02) $12,794 $3,760 $12,794 $3,760
Intangibles from branch acquisition 3,015 1,609 3,015 1,559
Core deposit intangibles 2,805 2,320 2,805 2,279
Mortgage servicing rights 608 596 608 593
Customer list intangibles 1,904 603 1,904 555
------------- ---------------- -------------- --------------
$21,126 $8,888 $21,126 $8,746
============= ================ ============== ==============
Total amortization expense for the three-months ended March 31, 2005 and 2004
was as follows (in thousands):
March 31,
2005 2004
-------------- -------------
Intangibles from branch acquisition $ 50 $ 50
Core deposit intangibles 40 69
Mortgage servicing rights 4 8
Customer list intangibles 48 48
-------------- -------------
$142 $175
============== =============
Aggregate amortization expense 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 3/31/05 $142
Estimated amortization expense:
For period 04/1/05-12/31/05 $426
For year ended 12/31/06 $579
For year ended 12/31/07 $515
For year ended 12/31/08 $454
For year ended 12/31/09 $417
For year ended 12/31/10 $391
In accordance with the provisions of SFAS 142, the Company performed testing of
goodwill for impairment as of September 30, 2004, and determined that, as of
that date, goodwill was not impaired. Management also concluded that the
remaining amounts and amortization periods were appropriate for all intangible
assets.
Stock Incentive Plan
The Company accounts for its Stock Incentive Plan in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting For
Stock Issued to Employees," and related interpretations. Accordingly, as the
intrinsic value was zero, compensation cost based on fair value at grant date
has not been recognized for stock options in the consolidated financial
statements. As required by SFAS 123, "Accounting for Stock-Based Compensation"
as amended by SFAS 148, "Accounting for Stock-Based Compensation--Transition and
Disclosure," the Company provides pro forma net income and pro forma earnings
per share disclosures for employee stock option grants.
The following table illustrates the effect on net income if the fair value based
method had been applied (in thousands, except per share data).
Three months ended March 31,
2005 2004
------------ ------------
Net income, as reported $2,435 $2,389
Stock based compensation expense
determined under fair value based
method, net of related tax effect (93) (65)
------------ ------------
Pro forma net income $2,342 $2,324
============ ============
Basic Earnings Per Share:
As reported $.55 $.52
Pro forma .53 .51
Diluted Earnings Per Share:
As reported $.54 $.51
Pro forma .52 .50
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, March 31,
2005 and 2004. 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
This overview of management's discussion and analysis highlights selected
information in this document and may not contain all of the information that is
important to you. For a more complete understanding of trends, events,
commitments, uncertainties, liquidity, capital resources, and critical
accounting estimates, you should carefully read this entire document. These have
an impact on the Company's financial condition and results of operations.
Net income was $2,435,000 and $2,389,000 and diluted earnings per share was $.54
and $.51 for the three months ended March 31, 2005 and 2004, respectively. The
increase in net income was primarily the result of higher net interest income
and greater non-interest income during the first quarter of 2005 than the first
quarter of 2004. The increase in earnings per share was the result of improved
net income and a decrease in the number of shares outstanding due to share
repurchases made through our stock buy-back program. During the first three
months of 2005, the Company acquired 39,329 shares at a total investment of
$1,566,000. The following table shows the Company's annualized performance
ratios for the three months ended March 31, 2005 and 2004, compared to the
performance ratios for the year ended December 31, 2004:
Three months ended Year ended
March 31, March 31, December 31,
2005 2004 2004
------------ ------------ -------------
Return on average assets 1.18% 1.21% 1.20%
Return on average equity 13.93% 13.96% 14.24%
Average equity to average assets 8.47% 8.64% 8.44%
Total assets at March 31, 2005 and December 31, 2004 were $823.7 million and
$826.7 million, respectively. The decrease in net assets was primarily the
result of a decrease in loan portfolio balances. Net loan balances were $588.6
million at March 31, 2005, a decrease of $4.6 million, or .8%, from $593.2
million at December 31, 2004, primarily due to seasonal paydowns in the
agricultural operating loan portfolio. Total deposit balances decreased to
$637.6 million at March 31, 2005 from $650.2 million at December 31, 2004
primarily due to brokered certificates of deposit that matured during the first
quarter of 2005 and were not immediately replaced and a decline in public fund
time deposits.
Net interest margin, defined as net interest income divided by average
interest-earning assets, was 3.71% for the three months ended March 31, 2005,
down from 3.88% for the same period in 2004. The decrease in the net interest
margin is attributable to a greater increase in borrowing and deposit rates
compared to the increase in interest-bearing liability rates. Net interest
income before the provision for loan losses was $7.1 million for the three
months ended March 31, 2005 compared to $7.0 million for the same period in
2004.
Noninterest income increased $278,000, or 9.6%, to $3.2 million for the three
months ended March 31, 2005 compared to $2.9 million in 2004. The primary reason
for this increase was $173,000 in gains on the sale of securities during the
first three months of 2005 as market conditions and investment portfolio
liquidity were conducive to the sale. There were no securities sold during the
first quarter of 2004.
Noninterest expense increased 2.2% or $138,000, to $6.3 million for the three
months ended March 31, 2005 compared to $6.2 million in 2004. The primary factor
in the expense increase was increased salaries and benefits expense that
resulted from additional employees for a new branch location in Highland, and
increases in accounting and legal professional fees incurred in implementing the
requirements of the Sarbanes-Oxley Act of 2002.
Following is a summary of the factors that contributed to the changes in net
income (in thousands):
2005 versus 2004
--------------------
Net interest income $35
Provision for loan losses -
Other income, including securities transactions 278
Other expenses (138)
Income taxes (129)
Increase in net income $46
Credit quality is an area of importance to the Company. Total nonperforming
loans were $3.7 million at March 31, 2005, compared to $3.3 million at March 31,
2004 and $3.1 million at December 31, 2004. The increase was primarily
attributable to the addition of a commercial real estate loan. The Company's
provision for loan loss for the three months ended March 31, 2005 and 2004 was
$187,000. At March 31, 2005, the composition of the loan portfolio remained
similar to the same period last year. Net charge-offs were 0.05% of average
loans compared to .08% in 2004. Loans secured by both commercial and residential
real estate comprised 73% of the loan portfolio as of March 31, 2005 and 2004.
The Company's capital position remains strong and the Company has consistently
maintained regulatory capital ratios above the "well-capitalized" standards. The
Company's Tier 1 capital to risk weighted assets ratio calculated under the
regulatory risk-based capital requirements at March 31, 2005 and 2004 was 11.35%
and 10.85%, respectively. The Company's total capital to risk weighted assets
ratio calculated under the regulatory risk-based capital requirements at March
31, 2005 and 2004 was 12.15% and 11.65%, respectively.
The Company's liquidity position remains sufficient to fund operations and meet
the requirements of borrowers, depositors, and creditors. The Company maintains
various sources of liquidity to fund its cash needs. See discussion under the
heading "Liquidity" for a full listing of sources and anticipated significant
contractual obligations. The Company enters into financial instruments with
off-balance sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include lines of credit,
letters of credit and other commitments to extend credit. The total outstanding
commitments at March 31, 2005 and 2004 were $111.9 million and $100.2 million,
respectively.
Critical Accounting Policies
The Company has established various accounting policies that govern the
application of U.S. generally accepted accounting principles in the preparation
of the Company's financial statements. The significant accounting policies of
the Company are described in the footnotes to the consolidated financial
statements included in the Company's 2004 Annual Report on Form 10-K. Certain
accounting policies involve significant judgments and assumptions by management
that have a material impact on the carrying value of certain assets and
liabilities; management considers such accounting policies to be critical
accounting policies. The judgments and assumptions used by management are based
on historical experience and other factors, which are believed to be reasonable
under the circumstances. Because of the nature of the judgments and assumptions
made by management, actual results could differ from these judgments and
assumptions, which could have a material impact on the carrying values of assets
and liabilities and the results of operations of the Company.
The Company believes the allowance for loan losses is the critical accounting
policy that requires the most significant judgments and assumptions used in the
preparation of its consolidated financial statements. In estimating the
allowance for loan losses, management utilizes historical experience, as well as
other factors, including the effect of changes in the local real estate market
on collateral values, the effect on the loan portfolio of current economic
indicators and their probable impact on borrowers, and increases or decreases in
nonperforming and impaired loans. Changes in these factors may cause
management's estimate of the allowance for loan losses to increase or decrease
and result in adjustments to the Company's provision for loan losses. See
heading "Loan Quality and Allowance for Loan Losses" for a more detailed
description of the Company's estimation process and methodology related to the
allowance for loan losses.
Results of Operations
Net Interest Income
The largest source of 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.
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):
Three months ended Three months ended
March 31, 2005 March 31, 2004
------------------------------------------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------------------------------------------------------------------------
ASSETS
Interest-bearing deposits $1,644 $ 10 2.47% $2,813 $ 6 0.87%
Federal funds sold 12,391 69 2.26% 18,070 39 0.88%
Investment securities
Taxable 147,942 1,380 3.73% 141,300 1,207 3.42%
Tax-exempt 22,200 183 3.30% 27,741 308 4.44%
Loans (1) 589,492 8,782 6.04% 547,729 8,167 6.06%
------------------------------------------------------------------------
Total earning assets 773,669 10,424 5.46% 737,653 9,727 5.36%
------------------------------------------------------------------------
Cash and due from banks 18,701 19,114
Premises and equipment 15,150 15,946
Other assets 22,688 23,996
Allowance for loan losses (4,697) (4,495)
------------ ---------------
Total assets $825,511 $792,214
============ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits
Demand deposits $231,657 $ 554 .97% $220,957 $ 341 .63%
Savings deposits 60,359 58 .39% 59,757 56 .38%
Time deposits 268,847 1,903 2.87% 251,022 1,741 2.82%
Securities sold under
agreements to repurchase 61,665 283 1.86% 55,345 72 .53%
FHLB advances 25,667 355 5.61% 28,597 387 5.50%
Federal funds purchased - - - 35 - -
Junior subordinated debt 10,310 140 5.51% 3,852 37 3.91%
Other debt 5,867 56 3.87% 8,795 53 2.45%
------------------------------------------------------------------------
Total interest-bearing
liabilities 664,372 3,349 2.04% 628,360 2,687 1.74%
------------------------------------------------------------------------
Non interest-bearing demand deposits 86,390 89,243
Other liabilities 4,835 6,141
Stockholders' equity 69,914 68,470
------------ ---------------
Total liabilities & equity $825,511 $792,214
============ ===============
Net interest income $ 7,075 $ 7,040
============ ===========
Net interest spread 3.42% 3.62%
Impact of non-interest
bearing funds .29% .26%
Net yield on interest-
earning assets 3.71% 3.88%
============ ============
(1) 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 for the three months ended
March 31, 2005, compared to the same period in 2004 (in thousands):
For the three months ended March 31,
2005 compared to 2004
Increase / (Decrease)
Total
Change Volume (1) Rate (1)
-------------------------------------------
Earning Assets:
Interest-bearing deposits $ 4 $ (1) $ 5
Federal funds sold 30 (8) 38
Investment securities:
Taxable 173 59 114
Tax-exempt (125) (55) (70)
Loans (2) 615 643 (28)
-------------------------------------------
Total interest income 697 638 59
-------------------------------------------
Interest-Bearing Liabilities:
Interest-bearing deposits
Demand deposits 213 17 196
Savings deposits 2 1 1
Time deposits 162 130 32
Securities sold under
agreements to repurchase 211 9 202
FHLB advances (32) (40) 8
Federal funds purchased - - -
Junior subordinated debt 103 83 20
Other debt 3 (4) 7
-------------------------------------------
Total interest expense 662 196 466
-------------------------------------------
Net interest income $ 35 $442 $ (407)
===========================================
(1) Changes attributable to the combined impact of volume and rate have been
allocated proportionately to the change due to volume and the change due to
rate.
(2) Nonaccrual loans are not material and have been included in the average
balances.
Net interest income increased $35,000, or .5% to $7,075,000 for the three months
ended March 31, 2005, from $7,040,000 for the same period in 2004. The increase
in net interest income was due to growth in earning assets primarily composed of
loan growth that was largely offset by an increase in the cost of
interest-bearing liabilities as the cost of floating-rate debt increased.
For the three months ended March 31, 2005, average-earning assets increased by
$36.0 million, or 4.9%, and average interest-bearing liabilities increased $36.0
million, or 5.7%, compared with average balances for the same period in 2004.
Changes in average balances are shown below:
* Average loans increased by $41.8 million or 7.6% in 2005 compared to 2004.
* Average securities increased by $1.1 million or .7% in 2005 compared to 2004.
* Average interest-bearing deposits increased by $29.1 million or 5.5% in 2005
compared to 2004.
* Average securities sold under agreements to repurchase increased by $6.3
million or 11.4% in 2005 compared to 2004.
* Average borrowings and other debt decreased by $5.9 million or 15.8% in 2005
compared to 2004.
* Net interest margin decreased to 3.71% in 2005 from 3.88% in 2004.
To compare the tax-exempt yields on interest-earning assets to taxable yields,
the Company also computes non-GAAP net interest income on a tax equivalent basis
(TE) where the interest earned on tax-exempt securities is adjusted to an amount
comparable to interest subject to normal income taxes assuming a federal tax
rate of 34% (referred to as the tax equivalent adjustment). The net yield on
interest-earning assets (TE) was 3.76% in 2005 and 3.93% in 2004. The TE
adjustments to net interest income for March 31, 2005 and 2004 were $94,000 and
$160,000, respectively.
Provision for Loan Losses
The provision for loan losses for the three months ended March 31, 2005 and 2004
was $187,000. Nonperforming loans increased from $3,271,000 as of March 31, 2004
to $3,726,000 as of March 31, 2005. Net charge-offs were $71,000 for the three
months ended March 31, 2005 compared to $113,000 during the same period in 2004.
For information on loan loss experience and nonperforming loans, see discussion
under 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 ended March 31, 2005 and 2004 (in thousands):
Three months ended March 31,
2005 2004 $ Change
------------- ------------- -------------
Trust $636 $616 $ 20
Brokerage 97 110 (13)
Insurance commissions 511 430 81
Service charges 1,034 1,124 (90)
Security gains 173 - 173
Mortgage banking 153 94 59
Other 572 524 48
------------- ------------- -------------
Total other income $3,176 $2,898 $ 278
============= ============= =============
Following are explanations for the three months ended March 31, 2005 compared to
the same period in 2004:
* Trust revenues increased $20,000 or 3.2% to $636,000 from $616,000. Trust
assets, at market value, were $384 million at March 31, 2005 compared to
$361 million at March 31, 2004. The increase in trust revenues was the
result of new business and an increase in equity prices.
* Revenues from brokerage decreased $13,000 or 11.8% to $97,000 from $110,000
as a result of a decrease in the number of stock transactions.
* Insurance commissions increased $81,000 or 18.8% to $511,000 from $430,000
due to an increase in commissions received on sales of business property
and casualty insurance and the timing of contingency fees received in the
first quarter of 2005.
* Fees from service charges decreased $90,000 or 8.0% to $1,034,000 from
$1,124,000. This was primarily the result of decreases in overdraft fees
due to a decline in the number of overdraft items.
* Mortgage banking income increased $59,000 or 62.8% to $153,000 from
$94,000. This increase was due to the increased volume of fixed rate loans
originated and sold by First Mid Bank. Loans sold balances are as follows:
* $13.6 million (representing 129 loans) for the 1st quarter of 2005.
* $3.1 million (representing 33 loans) for the 1st quarter of 2004.
First Mid Bank generally releases the servicing rights on loans sold into
the secondary market.
* Other income increased $48,000 or 9.2% to $572,000 from $524,000. This
increase was primarily due to increased ATM and bankcard service fees and
increased check printing income.
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, 2005 and 2004 (in thousands):
Three months ended March 31,
2005 2004 $ Change
------------ ------------- -------------
Salaries and benefits $ 3,474 $ 3,338 $136
Occupancy and equipment 1,036 1,073 (37)
Amortization of intangibles 142 175 (33)
Stationery and supplies 139 134 5
Legal and professional fees 386 276 110
Marketing and promotion 123 141 (18)
Other operating expenses 1,006 1,031 (25)
------------ ------------- -------------
Total other expense $ 6,306 $ 6,168 $ 138
============ ============= =============
Following are explanations for the three months ended March 31, 2005 compared to
the same period in 2004:
* Salaries and employee benefits, the largest component of other expense,
increased $136,000 or 4.1% to $3,474,000 from $3,338,000. This increase is
primarily due to merit increases for continuing employees and additional
employees hired due to the addition of a branch in Highland. There were 318
full-time equivalent employees at March 31, 2005 compared to 311 at March
31, 2004.
* Occupancy and equipment expense decreased $37,000 or 3.4% to $1,036,000
from $1,073,000 due to a decrease in depreciation expense for computer
equipment fully depreciated in 2004.
* Expense for amortization of intangible assets decreased $33,000 or 18.9% to
$142,000 from $175,000 due to an intangible asset that was fully amortized
in 2004.
* Other operating expenses decreased $25,000 or 2.4% to $1,006,000 in 2005
from $1,031,000 in 2004.
* All other categories of operating expenses increased a net of $97,000 or
17.6% to $648,000 from $551,000. The increase was primarily due to
increased professional fees resulting from the provisions of the
Sarbanes-Oxley Act of 2002 and a consulting fee paid for negotiation of our
check printing contract.
Income Taxes
Total income tax expense amounted to $1,323,000 (35.2% effective tax rate) for
the three months ended March 31, 2005, compared to $1,194,000 (33.3% effective
tax rate) for the same period in 2004. The change in the effective tax rate in
2005 is due to a reduction in the tax expense accrual in 2004 to more accurately
reflect the estimated tax liability and deferred tax position. There was no
similar reduction made in 2005.
Analysis of Balance Sheets
Loans
The loan portfolio (net of unearned interest) is the largest category of the
Company's earning assets. The following table summarizes the composition of the
loan portfolio as of March 31, 2005 and December 31, 2004 (in thousands):
March 31, December 31,
2005 2004
----------------------------------
Real estate - residential $120,546 $121,567
Real estate - agricultural 49,880 50,215
Real estate - commercial 259,716 255,372
----------------------------------
Total real estate - mortgage $430,142 $427,154
Commercial and agricultural 130,012 137,733
Installment 30,923 30,587
Other 2,220 2,375
----------------------------------
Total loans $593,297 $597,849
==================================
Overall loans decreased $4.6 million, or .8% as a result of seasonal declines in
agricultural operating loans. Total 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 commercial real estate
lending and long-term commitment to residential real estate lending. The balance
of real estate loans held for sale amounted to $1,250,000 and $2,689,000 as of
March 31, 2005 and December 31, 2004, respectively.
At March 31, 2005, the Company had loan concentrations in agricultural
industries of $85.5 million, or 14.4%, of outstanding loans and $91.5 million,
or 15.3%, at December 31, 2004. In addition, the Company had loan concentrations
in the following industries as of March 31, 2005 compared to December 31, 2004
(dollars in thousands):
March 31, 2005 December 31, 2004
Principal % Outstanding Principal % Outstanding
balance loans Balance loans
---------------- --------------- ----------------- ---------------
Operators of non-residential $23,949 4.04% $18,864 3.16%
buildings
Apartment building owners 32,247 5.44% 23,111 3.87%
Motels, hotels & tourist courts 28,616 4.82% 25,756 4.31%
The Company had no further loan concentrations in excess of 25% of Tier 1
risk-based capital.
The following table presents the balance of loans outstanding as of March 31,
2005, by maturities (in thousands):
Maturity (1)
-------------------------------------------------------------
Over 1
One year through Over
or less (2) 5 years 5 years Total
-------------------------------------------------------------
Real estate - residential $ 57,244 $ 59,300 $4,002 $120,546
Real estate - agricultural 9,406 34,379 6,095 49,880
Real estate - commercial 62,632 167,012 30,072 259,716
-------------------------------------------------------------
Total real estate - mortgage $129,282 $260,691 $ 40,169 $430,142
Commercial and agricultural 89,632 37,714 2,666 130,012
Installment 15,482 15,406 35 30,923
Other 931 1,006 283 2,220
-------------------------------------------------------------
Total loans $235,327 $314,817 $ 43,153 $593,297
=============================================================
(1) Based on scheduled principal repayments. (2) Includes demand loans, past
due loans and overdrafts.
As of March 31, 2005, loans with maturities over one year consisted of
approximately $256.3 million fixed rate loans and $101.7 million 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 (c) 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 March 31, 2005 and December 31, 2004 (in thousands):
March 31, December 31,
2005 2004
---------------------------------
Nonaccrual loans $3,726 $3,106
Renegotiated loans which are performing
in accordance with revised terms - -
---------------------------------
Total nonperforming loans $3,726 $3,106
=================================
The $620,000 increase in nonaccrual loans during the three months ended March
31, 2005 resulted from the net of $659,000 of loans put on nonaccrual status,
$23,000 of loans brought current or paid-off and $16,000 of loans charged-off.
Interest income that would have been reported if nonaccrual and renegotiated
loans had been performing totaled $34,000 and $53,000 for the three months ended
March 31, 2005 and 2004, respectively.
Loan Quality and Allowance for Loan Losses
The allowance for loan losses represents management's best estimate of the
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 the 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 that 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 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 for loan losses 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 that 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, 2005, the Company's loan
portfolio included $85.5 million of loans to borrowers whose businesses are
directly related to agriculture. The balance decreased by $6.1 million from
$91.5 million at December 31, 2004. 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
result in loan losses within the agricultural portfolio.
The Company has $28.6 million of loans to motels, hotels and tourist courts. The
performance of these loans is dependent on borrower specific issues as well as
the general level of business and personal travel within the region. While the
Company adheres to sound underwriting standards, a prolonged period of reduced
business or personal travel could result in an increase in nonperforming loans
to this business segment and potentially in loan losses. The Company also has
$23.9 million of loans to operators of non-residential buildings and $32.2
million of loans to apartment building owners.
Analysis of the allowance for loan losses as of March 31, 2005 and 2004, and of
changes in the allowance for the three-months ended March 31, 2005 and 2004, was
as follows (dollars in thousands):
Three months ended March 31,
2005 2004
--------------------------------
Average loans outstanding,
net of unearned income $589,492 $547,729
Allowance-beginning of period $ 4,621 $ 4,426
Charge-offs:
Real estate-mortgage - 18
Commercial, financial & agricultural 97 101
Installment 50 19
--------------------------------
Total charge-offs 147 138
Recoveries:
Real estate-mortgage - -
Commercial, financial & agricultural 61 15
Installment 15 10
--------------------------------
Total recoveries 76 25
--------------------------------
Net charge-offs (recoveries) 71 113
Provision for loan losses 187 187
--------------------------------
Allowance-end of period $ 4,737 $ 4,500
================================
Ratio of annualized net charge-offs
to average loans .05% .08%
================================
Ratio of allowance for loan losses to
loans outstanding (less unearned
interest at end of period) .80% .82%
================================
Ratio of allowance for loan losses
to nonperforming loans 127.1% 137.6%
================================
During the first three months of 2005, the Company had charge-offs of $53,000 on
two agricultural loans of a single borrower and a charge-off of $44,000 on a
commercial loan of a single borrower. The Company also recovered $56,000 on a
commercial real estate loan that had been charged-off in a prior period. During
the first three months of 2004, the Company had a charge-off of $83,000 on a
commercial loan of a single borrower.
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. On a quarterly basis, the board of directors and management review the
status of problem loans and determine a best estimate 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 March
31, 2005 and December 31, 2004 (dollars in thousands):
March 31, 2005 December 31, 2004
----------------------------- ---------------------------
Weighted Weighted
Amortized Average Amortized Average
Cost Yield Cost Yield
-------------- -------------- ------------- -------------
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $101,432 3.07% $ 92,369 2.81%
Obligations of states and
political subdivisions 19,634 4.58% 25,133 4.54%
Mortgage-backed securities 30,168 4.32% 34,032 3.82%
Other securities 17,891 6.16% 17,817 6.02%
-------------- -------------- ------------- -------------
Total securities $169,125 3.79% $169,351 3.61%
============== ============== ============= =============
At March 31, 2005, the Company's investment portfolio showed a slight increase
in U.S. Treasury securities and obligations of U.S. government corporations and
agencies and other securities and a decrease in mortgage-backed securities and
obligations of states and political subdivisions securities. The amortized cost,
gross unrealized gains and losses and estimated fair values for
available-for-sale and held-to-maturity securities by major security type at
March 31, 2005 and December 31, 2004 were as follows (in thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------------- --------------- ---------------- --------------
March 31, 2005
Available-for-sale:
U.S. Treasury securities and obligations
of U.S. government corporations & agencies $101,432 $ - $(1,332) $100,100
Obligations of states and political
Subdivisions 18,202 516 (7) 18,711
Mortgage-backed securities 30,168 90 (395) 29,863
Federal Home Loan Bank stock 5,365 - - 5,365
Other securities 12,526 538 (2) 13,062
--------------- --------------- ---------------- --------------
Total available-for-sale $167,693 $ 1,144 $(1,736) $167,101
=============== =============== ================ ==============
Held-to-maturity:
Obligations of states and political subdivisions $ 1,432 $ 43 $ - $1,475
=============== =============== ================ ==============
December 31, 2004
Available-for-sale:
U.S. Treasury securities and obligations
of U.S. government corporations & agencies $92,369 $ 35 $(507) $91,897
Obligations of states and political
subdivisions 23,581 755 (2) 24,334
Mortgage-backed securities 34,032 220 (54) 34,198
Federal Home Loan Bank stock 5,293 - - 5,293
Other securities 12,524 575 - 13,099
--------------- --------------- ---------------- --------------
Total available-for-sale $167,799 $ 1,585 $(563) $168,821
=============== =============== ================ ==============
Held-to-maturity:
Obligations of states and political subdivisions $ 1,552 $ 48 $ (2) $ 1,598
=============== =============== ================ ==============
At March 31, 2005, there was one mortgage-backed security with a fair value of
$3,375,000 and an unrealized loss of $46,000 in a continuous unrealized loss
position for twelve months or more. This position is due to intermediate and
long-term rates declining since the purchase of this security resulting in the
market value of the security being lower than book value. Management does not
believe any individual unrealized loss as of March 31, 2005 represents an other
than temporary impairment.
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, 2005 and the weighted average yield for each range of
maturities. Mortgage-backed securities are included based on their weighted
average life. All other securities are shown at their contractual maturity
(dollars in thousands).
One year After 1 through After 5 through After ten
or less 5 years 10 years years Total
--------------------------------------------------------------------------------
Available-for-sale:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $26,563 $ 56,400 $13,484 $ 4,985 $101,432
Obligations of state and
political subdivisions 1,411 7,526 8,120 1,145 18,202
Mortgage-backed securities 27 30,141 - - 30,168
Federal Home Loan Bank stock - - - 5,365 5,365
Other securities - - - 12,526 12,526
--------------------------------------------------------------------------------
Total investments $28,001 $94,067 $21,604 $24,021 $167,693
================================================================================
Weighted average yield 2.62% 3.58% 4.22% 5.51% 3.78%
Full tax-equivalent yield 2.71% 3.75% 5.03% 5.62% 4.01%
================================================================================
Held-to-maturity:
Obligations of state and
political subdivisions $ 140 $ 625 $ 135 $ 532 $ 1,432
================================================================================
Weighted average yield 5.28% 5.49% 5.75% 5.38% 5.45%
Full tax-equivalent yield 7.79% 8.12% 8.51% 7.94% 8.06%
================================================================================
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 March 31, 2005.
Investment securities carried at approximately $142,295,000 and $143,560,000 at
March 31, 2005 and December 31, 2004, 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 March 31, 2005 and
for the year ended December 31, 2004 (dollars in thousands):
March 31, 2005 December 31, 2004
--------------------------------------------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
--------------------------------------------------------------
Demand deposits:
Non-interest-bearing $ 86,390 - $ 85,437 -
Interest-bearing 231,657 .97% 230,300 .68%
Savings 60,359 .39% 61,144 .39%
Time deposits 268,847 2.87% 261,564 2.80%
--------------------------------------------------------------
Total average deposits $647,253 2.04% $638,445 1.43%
==============================================================
The following table sets forth the maturity of time deposits of $100,000 or more
at March 31, 2005 and December 31, 2004 (in thousands):
March 31, December 31,
2005 2004
--------------------------------------
3 months or less $25,837 $ 26,916
Over 3 through 6 months 10,553 17,560
Over 6 through 12 months 22,276 22,826
Over 12 months 42,580 48,031
--------------------------------------
Total $101,246 $115,333
======================================
During the first three months of 2005, the balance of time deposits of $100,000
or more decreased by $14.1 million. The decrease in balances was primarily
attributable to a decrease in brokered CDs of $6.7 million and a decrease in
public fund deposits of $7.4 million.
Balances of time deposits of $100,000 or more include brokered CDs, time
deposits maintained for public fund entities, and consumer time deposits. The
balance of brokered CDs was $35.4 million and $42.1 million as of March 31, 2005
and December 31, 2004, respectively. The Company also maintained time deposits
for the State of Illinois with balances of $1.6 million and $4.4 million as of
March 31, 2005 and December 31, 2004, respectively. The State of Illinois
deposits are subject to bid annually and could increase or decrease in any given
year.
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, loans
(short-term or long-term debt) that the Company has outstanding and junior
subordinated debentures.
Information relating to securities sold under agreements to repurchase and other
borrowings as of March 31, 2005 and December 31, 2004 is presented below
(dollars in thousands):
March 31, December 31,
2005 2004
-------------- ---------------
Securities sold under agreements to repurchase $65,715 $ 59,835
Federal Home Loan Bank advances:
Overnight - -
Fixed term - due in one year or less 15,300 17,300
Fixed term - due after one year 13,000 8,000
Debt:
Loans due in one year or less 6,200 4,200
Loans due after one year 200 400
Junior subordinated debentures 10,310 10,310
-------------- ---------------
Total $110,725 $ 100,045
============== ===============
Average interest rate at end of period 3.01% 2.59%
Maximum outstanding at any month-end
Securities sold under agreements to repurchase $65,715 $63,517
Federal Home Loan Bank advances:
Overnight - 7,000
Fixed term - due in one year or less 17,300 17,300
Fixed term - due after one year 13,000 25,300
Debt:
Loans due in one year or less 6,200 9,025
Loans due after one year 200 400
Junior subordinated debentures 10,310 10,310
Averages for the period (YTD)
Securities sold under agreements to repurchase $61,665 $55,645
Federal Home Loan Bank advances:
Overnight - 997
Fixed term - due in one year or less 16,633 8,200
Fixed term - due after one year 9,033 17,920
Federal funds purchased - 218
Debt:
Loans due in one year or less 5,600 6,746
Loans due after one year 267 415
Junior subordinated debentures 10,310 8,704
-------------- ---------------
Total $ 103,508 $98,845
============== ===============
Average interest rate during the period 3.39% 2.63%
FHLB advances represent borrowings by First Mid Bank to economically fund loan
demand. The fixed term advances consist of $28.3 million as follows:
* $2.3 million advance at 6.10% with a 5-year maturity, due April 7,
2005
* $5 million advance at 6.12% with a 5-year maturity, due September 6,
2005
* $5 million advance at 5.34% with a 5-year maturity, due December 14,
2005
* $3 million advance at 3.73% with a 1-year maturity, due March 21, 2006
* $5 million advance at 4.58% with a 5-year maturity, due March 22, 2010
* $3 million advance at 5.98% with a 10-year maturity, due March 1, 2011
* $5 million advance at 4.33% with a 10-year maturity, due November 23,
2011
At March 31, 2005, outstanding debt balances include $6,000,000 on a revolving
credit agreement with The Northern Trust Company with a floating interest rate
of 1.25% over the federal funds rate (4.04% as of March 31, 2005) and set to
mature October 22, 2005. This loan was renegotiated on October 23, 2004 and has
a maximum available balance of $15 million. The loan is secured by all of the
common stock of First Mid Bank. The borrowing agreement contains requirements
for the Company and First Mid Bank to maintain various operating and capital
ratios and also contains requirements for prior lender approval for certain
sales of assets, merger activity, the acquisition or issuance of debt and the
acquisition of treasury stock. The Company and First Mid Bank were in compliance
with the existing covenants at March 31, 2005 and 2004 and December 31, 2004.
The balance also includes a $400,000 remaining on a 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 (5.25% as of
March 31, 2005) and principal payable annually over five years, with a final
maturity of January 2007.
On February 27, 2004, the Company completed the issuance and sale of $10 million
of floating rate trust preferred securities through First Mid-Illinois Statutory
Trust I (the "Trust"), a statutory business trust and wholly-owned subsidiary of
the Company, as part of a pooled offering. The Company established the Trust for
the purpose of issuing the trust preferred securities. Upon adoption of FIN 46R,
the Company was required to de-consolidate its investment in the Trust. The $10
million in proceeds from the trust preferred issuance and an additional $310,000
for the Company's investment in common equity of the Trust, a total of $10,310
000, was invested in junior subordinated debentures of the Company. The
underlying junior subordinated debentures issued by the Company to the Trust
mature in 2034, bear interest at nine-month London Interbank Offered Rate
("LIBOR") plus 280 basis points, reset quarterly, and are callable, at the
option of the Company, at par on or after April 7, 2009. The Company intends to
use the proceeds of the offering for general corporate purposes. The trust
preferred securities issued by the Trust are included as Tier 1 capital of the
Company for regulatory capital purposes. On March 1, 2005, the Federal Reserve
Board adopted a final rule that allows the continued limited inclusion of trust
preferred securities in the calculation of Tier 1 capital for regulatory
purposes. The final rule provides a five-year transition period, ending March
31, 2009, for application of the quantitative limits. The Company does not
expect the application of the quantitative limits to have an impact on its
calculation of Tier 1 capital for regulatory purposes or its classification as
well-capitalized.
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
changes in the interest rate environment, 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 (ALCO) 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 embedded in
the balance sheet.
The following table sets forth the Company's interest rate repricing GAP for
selected maturity periods at March 31, 2005 (dollars in thousands):
Number of Months Until Next Repricing Opportunity
0-1 1-3 3-6 6-12 12+
--------------- --------------- ---------------- --------------- ---------------
Interest-earning assets:
Federal funds sold $ 8,475 $ - $ - $ - $ -
Taxable investment securities 14,018 13,060 2,987 2,482 111,390
Nontaxable investment securities 345 988 443 3,699 19,121
Loans 180,752 34,612 31,543 68,123 278,267
--------------- --------------- ---------------- --------------- ---------------
Total $ 203,590 $ 48,660 $34,973 $ 74,304 $408,778
--------------- --------------- ---------------- --------------- ---------------
Interest-bearing liabilities:
Savings and N.O.W. accounts $37,875 $2,681 $ 1,736 $ 3,841 $164,284
Money market accounts 51,975 592 888 1,684 28,995
Other time deposits 31,679 17,301 27,716 63,887 117,763
Short-term borrowings/debt 68,015 - 5,000 14,200 -
Long-term borrowings/debt - - - - 23,510
--------------- --------------- ---------------- --------------- ---------------
Total $189,544 $ 20,574 $ 35,340 $ 83,612 $334,552
=============== =============== ================ =============== ===============
$ 14,046
Periodic GAP $ 28,086 $ (367) $ (9,308) $74,226
=============== =============== ================ =============== ===============
Cumulative GAP $ 14,046 $ 42,132 $41,765 $ 32,457 $106,683
=============== =============== ================ =============== ===============
GAP as a % of interest-earning assets:
Periodic 1.8% 3.6% 0.0% (1.2%) 9.6%
Cumulative 1.8% 5.5% 5.4% 4.2% 13.8%
The static GAP analysis shows that at March 31, 2005, 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. Conversely, future decreases in interest rates
could have an adverse effect on net interest income.
There are several ways the Company measures and manages the exposure to interest
rate sensitivity, including static GAP analysis. The Company's ALCO also uses
other financial models to project interest income under various rate scenarios
and prepayment/extension assumptions consistent with First Mid 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 March 31, 2005, the Company's stockholders' equity had increased $682,000 or
1.0% to $69,836,000 from $69,154,000 as of December 31, 2004. During the first
three months of 2005, net income contributed $2,435,000 to equity before the
payment of dividends to common stockholders. The change in market value of
available-for-sale investment securities decreased stockholders' equity by
$985,000, net of tax. Additional purchases of treasury stock (39,329 shares at
an average cost of $39.82 per share) decreased stockholders' equity by
$1,566,000.
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 ("OCC"). 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, 2005 and December 31, 2004, the Company and First Mid Bank
met all capital adequacy requirements.
The trust preferred securities issued by First Mid-Illinois Statutory Trust I
are included as Tier 1 capital of the Company for regulatory capital purposes.
On March 1, 2005, the Federal Reserve Board adopted a final rule that allows the
continued limited inclusion of trust preferred securities in the calculation of
Tier 1 capital for regulatory purposes. The final rule provides a five-year
transition period, ending March 31, 2009, for application of the quantitative
limits. The Company does not expect the application of the quantitative limits
to have an impact on its calculation of Tier 1 capital for regulatory purposes
or its classification as well-capitalized.
As of March 31, 2005, the most recent notification from the OCC 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 following table (dollars in thousands). 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
------------- ------------ ------------ ------------ ------------ ------------
March 31, 2005
Total Capital (to risk-weighted assets)
Company $72,708 12.15% $47,892 > 8.00% N/A N/A
-
First Mid Bank 72,380 12.17% 47,588 > 8.00% $59,486 >10.00%
- -
Tier 1 Capital (to risk-weighted assets)
Company 67,971 11.35% 23,946 > 4.00% N/A N/A
-
First Mid Bank 67,643 11.37% 23,794 > 4.00% 35,691 > 6.00%
- -
Tier 1 Capital (to average assets)
Company 67,971 8.36% 32,531 > 4.00% N/A N/A
-
First Mid Bank 67,643 8.35% 32,392 > 4.00% 40,490 > 5.00%
- -
December 31, 2004
Total Capital (to risk-weighted assets)
Company $70,787 11.71% $48,371 > 8.00% N/A N/A
-
First Mid Bank 71,233 11.88% 47,988 > 8.00% $59,986 >10.00%
- -
Tier 1 Capital (to risk-weighted assets)
Company 66,166 10.94% 24,185 > 4.00% N/A N/A
-
First Mid Bank 66,612 11.10% 23,994 > 4.00% 35,991 > 6.00%
- -
Tier 1 Capital (to average assets)
Company 66,166 7.99% 33,132 > 4.00% N/A N/A
-
First Mid Bank 66,612 8.08% 32,961 > 4.00% 41,201 > 5.00%
- -
Banks and financial 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 2004 Annual Report on Form
10-K.
On August 5, 1998, the Company announced a stock repurchase program for 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 and in August 2002, the Board approved the repurchase of $5 million
of additional shares of the Company's common stock. In September 2003, the Board
approved the repurchase of $10 million of additional shares of the Company's
common stock. On April 27, 2004, the Board approved the repurchase of an
additional $5 million shares of the Company's common stock, bringing the
aggregate total on March 31, 2005 to 8% of the Company's common stock plus $23
million of additional shares.
During the three-month period ending March 31, 2005, the Company repurchased
39,289 shares at a total price of $1,566,000. Since 1998, the Company has
repurchased a total of 1,156,375 shares at a total price of $26,466,000. As of
March 31, 2005, the Company was authorized per all repurchase programs to
purchase $2,740,000 in additional shares.
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 of 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 First Mid Bank meeting minimum regulatory
capital requirements for total capital to risk-weighted assets and
Tier 1 capital to total average assets. As of March 31, 2005, First
Mid Bank's ratios of total capital to risk-weighted assets of 12.17%
and Tier 1 capital to total average assets of 8.35% 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 March 31, 2005, the excess collateral at the
Federal Home Loan Bank will support approximately $50 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 $15 million with The Northern Trust Company. The Company has
an outstanding balance of $6,000,000 as of March 31, 2005, and
$9,000,000 in available funds. On October 23, 2004, the Company
entered into an agreement with The Northern Trust Company to renew
this loan for one year with a maturity date of October 22, 2005, under
the same terms and conditions. The agreement contains requirements for
the Company and First Mid Bank to maintain various operating and
capital ratios and 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 March 31, 2005.
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; and
* operating activities, including scheduled debt repayments and
dividends to stockholders.
The following table summarizes significant contractual obligations and other
commitments at March 31, 2005 (in thousands):
Less than More than
Total 1 year 1-3 years 3-5 years 5 years
-------------- --------------- --------------- --------------- --------------
Time deposits $261,289 $143,312 $106,767 $10,923 $ 287
Debt 16,710 6,200 200 - 10,310
Other borrowings 94,015 81,015 - 5,000 8,000
Operating leases 4,449 457 837 890 2,265
Supplemental retirement 749 50 100 100 499
-------------- --------------- --------------- --------------- --------------
$377,212 $231,034 $107,904 $16,913 $21,361
============== =============== =============== =============== ==============
For the three-month period ended March 31, 2005, net cash of $5.2 million and
$3.6 million was provided from operating activities and investing activities,
respectively, while financing activities used net cash of $3.8 million. In
total, cash and cash equivalents increased by $5.0 million since year-end 2004.
On February 27, 2004, the Company completed the issuance and sale of $10 million
of floating rate trust preferred securities through First Mid-Illinois Statutory
Trust I (the "Trust"), a statutory business trust and wholly-owned subsidiary of
the Company, as part of a pooled offering. The Company established the Trust for
the purpose of issuing the trust preferred securities. Upon adoption of FIN 46R,
the Company was required to de-consolidate its investment in the Trust. The $10
million in proceeds from the trust preferred issuance and an additional $310,000
for the Company's investment in common equity of the Trust, a total of $10,310
000, was invested in junior subordinated debentures of the Company. The
underlying junior subordinated debentures issued by the Company to the Trust
mature in 2034, bear interest at three-month London Interbank Offered Rate
("LIBOR") plus 280 basis points, reset quarterly, and are callable, at the
option of the Company, at par on or after April 7, 2009. The Company has used
the proceeds of the offering for general corporate purposes. The trust preferred
securities issued by the Trust are included as Tier 1 capital of the Company for
regulatory capital purposes. Management believes it has adequate sources of
liquidity.
First Mid Bank enters into financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include lines of credit, letters of credit and other
commitments to extend credit. Each of these instruments involves, to varying
degrees, elements of credit, interest rate and liquidity risk in excess of the
amounts recognized in the consolidated balance sheets. The Company uses the same
credit policies and requires similar collateral in approving lines of credit and
commitments and issuing letters of credit as it does in making loans. The
exposure to credit losses on financial instruments is represented by the
contractual amount of these instruments. However, the Company does not
anticipate any losses from these instruments.
The off-balance sheet financial instruments whose contract amounts represent
credit risk at March 31, 2005 and December 31, 2004 were as follows (in
thousands):
March 31, December 31,
2005 2004
------------- ---------------
Unused commitments, including lines of credit:
Commercial real estate $ 33,228 $ 25,837
Commercial operating 41,404 35,986
Home equity 17,186 16,002
Other 17,107 13,577
------------- ---------------
Total $108,925 $ 91,402
============= ===============
Standby letters of credit $ 2,962 $ 2,840
============= ===============
Commitments to originate credit represent approved commercial, residential real
estate and home equity loans that generally are expected to be funded within
ninety days. Lines of credit are agreements by which the Company agrees to
provide a borrowing accommodation up to a stated amount as long as there is no
violation of any condition established in the loan agreement. Both commitments
to originate credit and lines of credit generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since many of the
lines and some commitments are expected to expire without being drawn upon, the
total amounts do not necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the financial performance of customers to third parties. Standby
letters of credit are primarily issued to facilitate trade or support borrowing
arrangements and generally expire in one year or less. The credit risk involved
in issuing letters of credit is essentially the same as that involved in
extending credit facilities to customers. The maximum amount of credit that
would be extended under letters of credit is equal to the total off-balance
sheet contract amount of such instrument.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the market risk faced by the Company since
December 31, 2004. 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, 2004.
ITEM 4. CONTROLS AND PROCEDURES
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of
the Company's "disclosure controls and procedures" (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), as of the end of the period covered by this
report. Based on such evaluation, such officers have concluded that, as of the
end of the period covered by this report, 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. Further, there have been no changes in the Company's internal
control over financial reporting during the last fiscal quarter that have
materially affected or that are reasonably likely to affect materially the
Company's internal control over financial reporting.
PART II
ITEM 1. LEGAL PROCEEDINGS
Since First Mid Bank acts as a depository of funds, it is named from time to
time as a defendant in lawsuits (such as garnishment proceedings) involving
claims as 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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER PURCHASES OF EQUITY SECURITIES
- ---------------------------------------------------------------------------------------------------------------------------
Period (a) Total Number of (b) Average Price (c) Total Number of Shares (d) Approximate Dollar
Value of Shares that
Purchased as Part of May Yet Be Purchased
Publicly Announced Plans Under the Plans or
Shares Purchased Paid per Share or Programs Programs
- ---------------------- --------------------- ----------------------- ---------------------------- -------------------------
January 1, 2005 -
January 31, 2005 8,794 $39.50 8,794 $3,959,000
February 1, 2005 -
February 28, 2005 30,071 $39.90 30,071 $2,759,000
March 1, 2005 -
March 31, 2005 464 $40.65 464 $2,740,000
--------------------- ----------------------- ---------------------------- -------------------------
Total 39,329 $39.82 39,329 $2,740,000
===================== ======================= ============================ =========================
On August 5, 1998, the Company announced a stock repurchase program for 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 and in August 2002, the Board approved the repurchase of $5 million
of additional shares of the Company's common stock. In September 2003, the Board
approved the repurchase of $10 million of additional shares of the Company's
common stock. On April 27, 2004, the Board approved the repurchase of an
additional $5 million shares of the Company's common stock, bringing the
aggregate total on March 31, 2005 to 8% of the Company's common stock plus $23
million of additional shares.
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
(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 that
immediately precedes the exhibits filed.
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)
Date: May 4, 2005
/s/ William S. Rowland
William S. Rowland
President and Chief Executive Officer
/s/ Michael L. Taylor
Michael L. Taylor
Chief Financial Officer
Exhibit Index to Quarterly Report on 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)
31.1 Certification pursuant to section 302 of the Sarbanes-Oxley Act
of 2002
31.2 Certification pursuant to section 302 of the Sarbanes-Oxley Act
of 2002
32.1 Certification pursuant to 18 U.S.C. section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification pursuant to 18 U.S.C. section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 31.1
Certification pursuant to section 302
of the Sarbanes-Oxley Act of 2002
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 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 report;
3. Based on my knowledge, the financial statements, and other
financial information included in this 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 report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, 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
report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting
and the preparation of financial statements for external
purposes in accordance with U.S. generally accepted
accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth quarter in the case of an annual report)
that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: May 4, 2005
By: /s/ William S. Rowland
William S. Rowland, President and Chief Executive Officer
Exhibit 31.2
Certification pursuant to section 302
of the Sarbanes-Oxley Act of 2002
I, Michael L. Taylor, certify that:
1. I have reviewed this report on Form 10-Q of First Mid-Illinois
Bancshares, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other
financial information included in this 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 report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, 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
report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting
and the preparation of financial statements for external
purposes in accordance with U.S. generally accepted
accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth quarter in the case of an annual report)
that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: May 4, 2005
By: /s/ Michael L. Taylor
Michael L. Taylor, Chief Financial Officer
Exhibit 32.1
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 ended March 31, 2005 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: May 4, 2005
/s/ William S. Rowland
William S. Rowland
President and Chief Executive Officer
Exhibit 32.2
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 ended March 31, 2005 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: May 4, 2005
/s/ Michael L. Taylor
Michael L. Taylor
Chief Financial Officer