SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
COMMISSION FILE NUMBER: 0-13368
FIRST MID-ILLINOIS BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State of incorporation)
37-1103704
(I.R.S. employer identification No.)
1515 CHARLESTON AVENUE, MATTOON, ILLINOIS 61938
(Address and Zip Code of Principal Executive Offices)
(217) 234-7454
(Registrant's telephone number, including area code)
Indicate by check mark whether the Company (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the Company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
As of November 10, 2000, 2,242,294 common shares, $4.00 par value, were
outstanding.
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS (unaudited) September 30, December 31,
(In thousands, except share data) 2000 1999
ASSETS
<S> <C> <C>
Cash and due from banks:
Non-interest bearing .............................................. $ 16,515 $ 21,054
Interest bearing .................................................. -- 78
Federal funds sold .................................................. 112 710
Cash and cash equivalents ......................................... 16,627 21,842
Investment securities:
Available-for-sale, at fair value ................................. 151,001 150,157
Held-to-maturity, at amortized cost (estimated fair
value of $3,109 and $2,077 at September 30, 2000
and December 31, 1999, respectively) ............................ 3,102 2,132
Loans ............................................................... 423,181 388,319
Less allowance for loan losses ...................................... 3,182 2,939
Net loans ......................................................... 419,999 385,380
Premises and equipment, net ......................................... 15,589 16,153
Intangible assets, net .............................................. 12,444 13,340
Other assets ........................................................ 13,016 12,099
TOTAL ASSETS ...................................................... $ 631,778 $ 601,103
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing .............................................. $ 61,474 $ 60,555
Interest bearing .................................................. 429,747 424,456
Total deposits .................................................... 491,221 485,011
Federal funds purchased ............................................. 500 1,175
Securities sold under agreements to repurchase ...................... 22,676 32,308
Federal Home Loan Bank advances-short term .......................... 40,900 3,000
Federal Home Loan Bank advances-long term ........................... 12,300 18,500
Long-term debt ...................................................... 4,325 4,325
Other liabilities ................................................... 4,693 5,266
TOTAL LIABILITIES ................................................. 576,615 549,585
Stockholders' Equity:
Common stock, $4 par value; authorized 6,000,000
shares; issued 2,323,965 shares in 2000 and
2,302,022 shares in 1999 .......................................... 9,296 9,208
Additional paid-in-capital .......................................... 12,257 11,608
Retained earnings ................................................... 38,435 34,835
Deferred compensation ............................................... 1,212 1,123
Accumulated other comprehensive loss ................................ (2,320) (3,265)
Less treasury stock at cost, 77,078 shares
in 2000 and 25,235 shares in 1999 ................................. (3,717) (1,991)
TOTAL STOCKHOLDERS' EQUITY .......................................... 55,163 51,518
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................... $ 631,778 $ 601,103
See accompanying notes to unaudited consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME (unaudited) THREE MONTHS ENDED NINE MONTHS ENDED
(In thousands, except per share data) September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans ........................... $ 8,983 $ 7,664 $ 25,641 $ 21,706
Interest on investment securities .................... 2,286 2,304 6,856 6,542
Interest on federal funds sold ....................... 28 180 91 439
Interest on deposits with
other financial institutions ....................... 2 18 6 --
Total interest income .............................. 11,299 10,166 32,594 28,687
INTEREST EXPENSE:
Interest on deposits ................................. 4,776 4,297 13,386 11,892
Interest on securities sold under agreements
to repurchase ...................................... 343 243 943 631
Interest on Federal Home Loan Bank advances .......... 726 197 1,721 695
Interest on Federal funds purchased .................. 10 1 57 8
Interest on long-term debt ........................... 86 70 244 206
Total interest expense ............................. 5,941 4,808 16,351 13,432
Net interest income ................................ 5,358 5,358 16,243 15,255
Provision for loan losses ............................ 100 150 400 450
Net interest income after provision ................ 5,258 5,208 15,843 14,805
OTHER INCOME:
Trust revenues ....................................... 401 514 1,362 1,459
Brokerage revenues ................................... 95 111 370 340
Service charges ...................................... 628 617 1,836 1,690
Securities losses .................................... (3) -- (3) --
Mortgage banking income .............................. 92 42 261 566
Other ................................................ 302 281 915 965
Total other income ................................. 1,515 1,565 4,741 5,020
OTHER EXPENSE:
Salaries and employee benefits ....................... 2,519 2,487 7,545 7,142
Net occupancy and equipment expense .................. 919 903 2,702 2,524
Amortization of intangible assets .................... 294 302 896 684
Stationery and supplies .............................. 126 141 398 504
Legal and professional ............................... 232 375 607 882
Marketing and promotion .............................. 205 154 611 468
Other ................................................ 658 684 2,142 1,998
Total other expense ................................ 4,953 5,046 14,901 14,202
Income before income taxes ........................... 1,820 1,727 5,683 5,623
Income taxes ......................................... 536 454 1,474 1,695
Net income ......................................... $ 1,284 $ 1,273 $ 4,209 $ 3,928
Per share data:
Basic earnings per share ............................. $ .57 $ .58 $ 1.85 $ 1.83
Diluted earnings per share ........................... $ .57 $ .55 $ 1.85 $ 1.72
See accompanying notes to unaudited consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED
September 30,
(In thousands) 2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................... $ 4,209 $ 3,928
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses .......................................... 400 450
Depreciation, amortization and accretion, net ...................... 2,192 1,748
Loss on sale of securities, net .................................... 3 --
(Gain) loss on sale of other real property owned, net .............. 47 (88)
Gain on sale of mortgage loans held for sale, net .................. (204) (511)
Origination of mortgage loans held for sale ........................ (11,025) (26,563)
Proceeds from sale of mortgage loans held for sale ................. 11,929 34,559
Decrease in other assets ........................................... (908) (3,517)
Increase (decrease) in other liabilities ........................... (486) 1,702
Net cash provided by operating activities ............................ 6,157 11,708
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalization of mortgage servicing rights .......................... (111) (36)
Purchases of premises and equipment .................................. (858) (2,369)
Net increase in loans ................................................ (35,719) (28,284)
Proceeds from sales of securities available-for-sale ................. 607 --
Proceeds from maturities of securities available-for-sale ............ 5,833 28,068
Proceeds from maturities of securities held-to-maturity .............. 30 135
Purchases of securities available-for-sale ........................... (4,817) (33,847)
Purchases of securities held-to-maturity ............................. (1,746) (332)
Purchase of financial organization, net of cash received ............. -- 46,441
Net cash provided by (used in) investing activities .................. (36,781) 9,776
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits .................................. 6,210 (13,181)
Decrease in repurchase agreements .................................... (9,632) (2,383)
Decrease in federal funds purchased .................................. (675) --
Increase (decrease) in short-term borrowings ......................... 37,900 (4,000)
Decrease in long-term borrowings ..................................... (6,200) (375)
Proceeds from issuance of common stock ............................... 12 344
Purchase of treasury stock ........................................... (1,637) (171)
Dividends paid on preferred stock .................................... -- (45)
Dividends paid on common stock ....................................... (569) (515)
Net cash provided by (used in) financing activities .................. 25,409 (20,326)
Increase (decrease) in cash and cash equivalents ..................... (5,215) 1,158
Cash and cash equivalents at beginning of period ..................... 21,842 21,772
Cash and cash equivalents at end of period ........................... $ 16,627 $ 22,930
ADDITIONAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest ........................................................... $ 16,587 $ 13,399
Income taxes ....................................................... 1,930 1,989
Loans transferred to real estate owned ............................... 102 497
Dividends reinvested in common stock ................................. 724 651
See accompanying notes to unaudited consolidated financial statements
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING AND CONSOLIDATION
The unaudited consolidated financial statements include the accounts of
First Mid-Illinois Bancshares, Inc. ("Company") and its wholly-owned
subsidiaries: Mid-Illinois Data Services, Inc. ("MIDS") and First Mid-Illinois
Bank & Trust, N.A. ("First Mid Bank") and its wholly-owned subsidiary First
Mid-Illinois Insurance Services, Inc. ("First Mid Insurance"). All significant
inter-company balances and transactions have been eliminated in consolidation.
The financial information reflects all adjustments which, in the opinion of
management, are necessary to present a fair statement of the results of the
interim periods ended September 30, 2000 and 1999, and all such adjustments are
of a normal recurring nature. The results of the interim period ended September
30, 2000, are not necessarily indicative of the results expected for the year
ending December 31, 2000.
The unaudited consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X
and do not include all of the information required by generally accepted
accounting principles for complete financial statements and related footnote
disclosures. These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
1999 Form 10-K.
COMPREHENSIVE INCOME
The Company's comprehensive income for the three month and nine month
periods ended September 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30,
(In thousands) 2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net income ............................... $ 1,284 $ 1,273 $ 4,209 $ 3,928
Other comprehensive income:
Unrealized gain (loss) during the period 1,382 (679) 1,429 (4,024)
Less: realized loss during the period .. 3 -- 3 --
Tax effect ............................. (471) 231 (487) 1,368
Comprehensive income ..................... $ 2,198 $ 825 $ 5,154 $ 1,272
</TABLE>
EARNINGS PER SHARE
Income for Basic Earnings per Share ("EPS") is adjusted for dividends
attributable to preferred stock in 1999 and is based on the weighted average
number of common shares outstanding. Diluted EPS is computed by using the
weighted average number of common shares outstanding, increased by the assumed
conversion of the Company's stock options and, for 1999 periods, by the assumed
conversion of the convertible preferred stock. On November 15, 1999, the Company
issued shares of its common stock to holders of its Series A Convertible
preferred stock upon the Company's election to convert all such preferred stock
into common stock.
The components of basic and diluted earnings per common share for the three
month and nine month periods ended September 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net income ................................ $1,284,000 $1,273,000 $4,209,000 $3,928,000
Less preferred stock dividends ............. -- (71,000) -- (213,000)
Net income available to common stockholders $1,284,000 $1,202,000 $4,209,000 $3,715,000
Weighted average common shares outstanding . 2,251,541 2,029,636 2,270,571 2,021,861
Basic Earnings per Common Share ............ $ .57 $ .58 $ 1.85 $ 1.83
DILUTED EARNINGS PER SHARE:
Net income available to common stockholders $1,284,000 $1,202,000 $4,209,000 $3,715,000
Assumed conversion of preferred stock ...... -- 71,000 -- 213,000
Net income available to common stock-
holders after assumed conversion ......... $1,284,000 $1,273,000 $4,209,000 $3,928,000
Weighted average common shares outstanding . 2,251,541 2,029,636 2,270,571 2,021,861
Assumed conversion of stock options ........ 3,127 8,273 4,308 7,711
Assumed conversion of preferred stock ...... -- 248,179 -- 250,604
Diluted weighted average common
shares outstanding ....................... 2,254,668 2,286,088 2,274,879 2,280,176
Diluted Earnings per Common Share .......... $ .57 $ .55 $ 1.85 $ 1.72
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis is intended to provide a better
understanding of the consolidated financial condition and results of operations
of the Company and its subsidiaries for the periods ended September 30, 2000 and
1999. This discussion and analysis should be read in conjunction with the
consolidated financial statements, related notes and selected financial data
appearing elsewhere in this report.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, such as, discussions of the
Company's pricing and fee trends, credit quality and outlook, liquidity, new
business results, expansion plans, anticipated expenses and planned schedules.
The Company intends such forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and is including this statement for
purposes of these safe harbor provisions. Forward-looking statements, which are
based on certain assumptions and describe future plans, strategies and
expectations of the Company, are identified by use of the words "believe,"
"expect," "intend," "anticipate," "estimate," "project," or similar expressions.
Actual results could differ materially from the results indicated by these
statements because the realization of those results is subject to many
uncertainties including: changes in interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Company's market area and accounting principles, policies and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. Further
information concerning the Company and its business, including additional
factors that could materially affect the Company's financial results, is
included in the Company's filings with the Securities and Exchange Commission.
OVERVIEW
Net income for the three months ended September 30, 2000 was $1,284,000
($.57 diluted EPS), an increase of $11,000 from $1,273,000 ($.55 diluted EPS)
for the same period in 1999. A summary of the factors which contributed to the
changes in net income for the three months is shown in the table below.
Net income for the nine months ended September 30, 2000 was $4,209,000
($1.85 diluted EPS), an increase of $281,000 from $3,928,000 ($1.72 diluted EPS)
for the same period in 1999. A summary of the factors which contributed to the
changes in net income for the nine months is shown in the table below.
2000 VERSUS 1999
(In thousands) THREE MONTHS NINE MONTHS
Net interest income ........................... $ 50 $ 1,038
Other income, including securities transactions (50) (279)
Other expenses ................................ 93 (699)
Income taxes .................................. (82) 221
Increase in net income ........................ $ 11 $ 281
The following table shows the Company's annualized performance ratios for
the nine months ended September 30, 2000 and 1999, as compared to the
performance ratios for the year ended December 31, 1999:
September 30, December 31,
2000 1999 1999
Return on average assets ....... .92% .92% .91%
Return on average equity ....... 10.63% 10.18% 10.14%
Return on average common equity 10.63% 10.19% 10.08%
Average equity to average assets 8.65% 9.09% 8.96%
RESULTS OF OPERATIONS
NET INTEREST INCOME
The largest source of operating revenue for the Company is net interest
income. Net interest income represents the difference between total interest
income earned on earning assets and total interest expense paid on
interest-bearing liabilities. The amount of interest income is dependent upon
many factors, including the volume and mix of earning assets, the general level
of interest rates and the dynamics of changes in interest rates. The cost of
funds necessary to support earning assets varies with the volume and mix of
interest-bearing liabilities and the rates paid to attract and retain such
funds.
For purposes of the following discussion and analysis, the interest earned
on tax-exempt securities is adjusted to an amount comparable to interest subject
to normal income taxes. The adjustment is referred to as the tax-equivalent
("TE") adjustment. The Company's average balances, interest income and expense
and rates earned or paid for major balance sheet categories are set forth in the
following table (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits $ 117 $ 6 6.27% $ 1,792 $ 67 4.95%
Federal funds sold 2,015 91 6.03% 10,266 372 4.83%
Investment securities
Taxable 120,984 5,774 6.36% 125,676 5,506 5.84%
Tax-exempt (1) 30,152 1,639 7.25% 29,617 1,569 7.06%
Loans (2)(3) 403,638 25,641 8.47% 351,144 21,706 8.24%
Total earning assets 556,906 33,151 7.94% 518,495 29,220 7.51%
Cash and due from banks 16,483 16,336
Premises and equipment 15,897 14,399
Other assets 24,080 19,982
Allowance for loan losses (3,113) (2,879)
Total assets $610,253 $566,333
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits
Demand deposits $163,440 $ 3,765 3.07% $143,283 $ 2,678 2.49%
Savings deposits 39,891 716 2.39% 40,585 694 2.28%
Time deposits 222,889 8,905 5.33% 223,297 8,520 5.09%
Securities sold under
agreements to repurchase 23,349 943 5.38% 20,512 631 4.10%
FHLB advances 35,559 1,721 6.45% 18,343 695 5.05%
Federal funds purchased 1,223 57 6.23% 202 8 5.04%
Long-term debt 4,325 244 7.53% 4,447 206 6.17%
Total interest-bearing
liabilities 490,676 16,351 4.44% 450,669 13,432 3.97%
Demand deposits 62,148 60,013
Other liabilities 4,623 4,187
Stockholders' equity 52,806 51,464
Total liabilities & equity $610,253 $566,333
Net interest income (TE) $16,800 $15,787
Net interest spread 3.48% 3.54%
Impact of non-interest
bearing funds .53% .52%
Net yield on interest-
earning assets (TE) 4.02% 4.06%
<FN>
<F1>
(1) Interest income and rates are presented on a tax-equivalent basis ("TE") assuming a
federal income tax rate of 34%.
<F2>
(2) Loan fees are included in interest income and are not material.
<F3>
(3) Nonaccrual loans have been included in the average balances.
</FN>
</TABLE>
<PAGE>
Changes in net interest income may also be analyzed by segregating the
volume and rate components of interest income and interest expense. The
following table summarizes the approximate relative contribution of changes in
average volume and interest rates to changes in net interest income (TE) for the
nine months ended September 30, 2000, as compared to the same period in 1999 (in
thousands):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2000 COMPARED TO 1999
INCREASE / (DECREASE)
TOTAL RATE/
CHANGE VOLUME RATE VOLUME (4)
<S> <C> <C> <C> <C>
EARNING ASSETS:
Interest-bearing deposits ......... $ (61) $ (62) $ 18 $ (17)
Federal funds sold ................ (281) (300) 93 (74)
Investment securities:
Taxable ......................... 268 (206) 492 (18)
Tax-exempt (1) .................. 70 28 41 1
Loans (2)(3) ...................... 3,935 3,244 601 90
Total interest income ........... 3,931 2,704 1,245 (18)
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits
Demand deposits ................. 1,087 376 623 88
Savings deposits ................ 22 (12) 35 (1)
Time deposits ................... 384 (16) 401 (1)
Securities sold under
agreements to repurchase ........ 312 88 197 27
FHLB advances ..................... 1,026 653 192 181
Federal funds purchased ........... 49 38 2 9
Long-term debt .................... 38 (6) 45 (1)
Total interest expense .......... 2,918 1,121 1,495 302
Net interest income .............. $ 1,013 $ 1,583 $ (250) $ (320)
<FN>
<F1>
(1) Interest income and rates are presented on a tax-equivalent basis, assuming a
federal income tax rate of 34%.
<F2>
(2) Loan fees are included in interest income and are not material.
<F3>
(3) Nonaccrual loans are not material and have been included in the average balances.
<F4>
(4) The changes in rate/volume are computed on a consistent basis by
multiplying the change in rates with the change in volume.
</FN>
</TABLE>
On an tax equivalent basis, net interest income increased $1,013,000, or
6.4% to $16,800,000 for the nine months ended September 30, 2000, from
$15,787,000 for the same period in 1999. The increase in net interest income for
the nine months ended September 30, 2000, was primarily due to an increase in
rates on earning assets combined with an increase in the volume of earning
assets offset by an increase in the rates combined with higher average
interest-bearing liabilities.
For the nine months ended September 30, 2000, average earning assets
increased by $38,411,000, or 7.4%, and average interest-bearing liabilities
increased $40,007,000, or 8.9%, compared with average balances for the nine
months ended September 30, 1999.
<PAGE>
Changes in average balances, as a percent of average earnings assets, are
shown below:
* average loans (as a percent of average earnings assets) increased 4.8%
to 72.5% for the nine months ended September 30, 2000 from 67.7% for
the nine months ended September 30, 1999.
* average securities (as a percent of average earnings assets) decreased
2.9% to 27.1% for the nine months ended September 30, 2000 from 30.0%
for the nine months ended September 30, 1999.
* average interest-bearing liabilities (as a percent of average earnings
assets) increased 1.2% to 88.1% for the nine months ended September
30, 2000 from 86.9% for the nine months ended September 30, 1999.
* net interest margin, on a tax equivalent basis, decreased to 4.02% for
the nine months ended September 30, 2000, from 4.06% for the nine
months ended September 30, 1999.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended September 30, 2000
and 1999 was $100,000 and $150,000, respectively, and was $400,000 and $450,000,
respectively, for the nine months ended September 30, 2000 and 1999. For
information on loan loss experience and nonperforming loans, see the
"NONPERFORMING LOANS" and "LOAN QUALITY AND ALLOWANCE FOR LOAN LOSSES" sections
later in this document.
OTHER INCOME
An important source of the Company's revenue is derived from other income.
The following table sets forth the major components of other income for the
three months ended and nine months ended September 30, 2000 and 1999 (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
2000 1999 $ CHANGE 2000 1999 $ CHANGE
<S> <C> <C> <C> <C> <C> <C>
Trust $ 401 $ 514 $ (113) $ 1,362 $ 1,459 $ (97)
Brokerage 95 111 (16) 370 340 30
Service charges 628 617 11 1,836 1,690 146
Security gains (losses) (3) -- (3) (3) -- (3)
Mortgage banking 92 42 50 261 566 (305)
Other 302 281 21 915 965 (50)
Total other income $ 1,515 $ 1,565 $ (50) $ 4,741 $ 5,020 $ (279)
</TABLE>
* Total non-interest income decreased to $4,741,000 for the nine months ended
September 30, 2000, compared to $5,020,000 for the same period in 1999.
* Trust revenues decreased $97,000 or 6.6% to $1,362,000 for the nine months
ended September 30, 2000, compared to $1,459,000 for the same period in
1999.
Trust assets, reported at market value, were $307 million at September 30,
2000, $324 million at December 31, 1999 and $316 million at September 30,
1999.
* Revenues from brokerage and annuity sales increased $30,000 or 8.8% for the
nine months ended September 30, 2000, compared with the same period in
1999, as a result of increased sales of annuities.
* Fees from service charges increased $146,000 or 8.4% to $1,836,000 for the
nine months ended September 30, 2000, compared to $1,690,000 for the same
period in 1999. This increase was primarily due to an increase in the
number of savings and transaction accounts and an increase in the fees
charged on deposit accounts.
* Security gains (losses) showed a net loss of $3,000 for the nine months
ended September 30, 2000 as compared with no net gain or loss for the same
period in 1999.
* Mortgage banking income decreased $305,000 or 53.9% to $261,000 for the
nine months ended September 30, 2000, compared to $566,000 for the same
period in 1999. This decrease was due to a lower number of fixed rate loans
originated and sold by First Mid Bank. This decrease in volume is largely
attributed to fewer re-financings by customers as a result of rising
interest rates. Loans sold are as follows:
* $11.7 million (representing 163 loans) for the nine months ended
September 30, 2000.
* $34.0 million (representing 439 loans) for the nine months ended
September 30, 1999.
* Other income decreased $50,000 or 5.2% to $915,000 for the nine months
ended September 30, 2000, compared to $965,000 for the same period in 1999.
This decrease was partially attributed to a gain on the sale of real
property during second quarter 1999.
OTHER EXPENSE
The major categories of other expense include salaries and employee
benefits, occupancy and equipment expenses and other operating expenses
associated with day-to-day operations. The following table sets forth the major
components of other expense for the three months and nine months ended September
30, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
2000 1999 $ CHANGE 2000 1999 $ CHANGE
<S> <C> <C> <C> <C> <C> <C>
Salaries and benefits $ 2,519 $ 2,487 $ 32 $ 7,545 $ 7,142 $ 403
Occupancy and equipment 919 903 16 2,702 2,524 178
FDIC premiums 25 24 1 76 78 (2)
Amortization of intangibles 294 302 (8) 896 684 212
Stationery and supplies 126 141 (15) 398 504 (106)
Legal and professional fees 232 375 (143) 607 882 (275)
Marketing and promotion 205 154 51 611 468 143
Other operating expenses 633 660 (27) 2,066 1,920 146
Total other expense $ 4,953 $ 5,046 $ (93) $14,901 $14,202 $ 699
</TABLE>
* Total non-interest expense increased to $14,901,000 for the nine months
ended September 30, 2000, compared to $14,202,000 for the same period in
1999.
* Salaries and employee benefits, the largest component of other expense,
increased $403,000 or 5.6% to $7,545,000 for the nine months ended
September 30, 2000, compared to $7,142,000 for the same period in 1999.
This increase can be explained by merit increases for continuing employees,
addition of the employees of the Monticello, Taylorville and DeLand
branches in May, 1999 and the addition of the employees of the Decatur
branch in April, 2000.
There were 269 FTE employees at September 30, 2000.
* Occupancy and equipment expense increased $178,000 or 7.1% to $2,702,000
for the nine months ended September 30, 2000, compared to $2,524,000 for
the same period in 1999. This increase included depreciation expense
recorded on technology equipment placed in service as well as the
depreciation expense on buildings in Monticello, Taylorville, DeLand,
Tuscola and Decatur.
* Amortization of intangible assets increased $212,000 or 31.0% to $896,000
for the nine months ended September 30, 2000, compared to $684,000 for the
same period in 1999. This increase was due to the goodwill and core deposit
intangibles associated with the purchase of the Monticello, Taylorville and
DeLand branch acquisition in May, 1999.
* All other categories of operating expenses decreased a net of $94,000 or
2.4% to $3,758,000 for the nine months ended September 30, 2000, compared
to $3,852,000 for the same period in 1999. Most of this decrease is due to
less expense for supplies, legal and other professional fees associated
with the purchase of the Monticello, Taylorville and DeLand branch
acquisition in May, 1999.
INCOME TAXES
Total income tax expense amounted to $1,474,000 for the nine months ended
September 30, 2000, compared to $1,695,000 for the same period in 1999.
Effective tax rates were 25.9% and 30.1% for the nine month periods ended
September 30, 2000 and 1999. The Company donated property with a current market
value in excess of the book value to the local school district during the second
quarter of 2000, which led to a lower tax expense and effective tax rate in
2000.
<PAGE>
ANALYSIS OF BALANCE SHEETS
LOANS
The loan portfolio is the largest category of the Company's earning assets.
The following table summarizes the composition of the loan portfolio as of
September 30, 2000 and December 31, 1999 (in thousands):
September 30, DECEMBER 31,
2000 1999
Real estate - mortgage $293,773 $273,293
Commercial, financial
and agricultural 100,156 89,176
Installment 28,169 24,501
Other 1,083 1,349
Total loans $423,181 $388,319
At September 30, 2000, the Company had loan concentrations in agricultural
industries of $67.1 million, or 15.9%, of outstanding loans and $59.5 million,
or 15.3%, at December 31, 1999. The Company had no further industry loan
concentrations in excess of 10% of outstanding loans.
Real estate mortgage loans have averaged approximately 70% of the Company's
total loan portfolio for the past several years. This is the result of a strong
local housing market and the Company's historical focus on residential real
estate lending. The balance of real estate loans held for sale amounted to
$649,000 as of September 30, 2000.
The following table presents the balance of loans outstanding as of
September 30, 2000, by maturities (dollars in thousands):
MATURITY (1)
OVER 1
ONE YEAR THROUGH OVER
OR LESS (2) 5 YEARS 5 YEARS TOTAL
Real estate - mortgage $ 66,732 $190,902 $ 36,139 $293,773
Commercial, financial
and agricultural ... 64,028 32,918 3,210 100,156
Installment .......... 5,566 20,908 1,695 28,169
Other ................ 329 306 448 1,083
Total loans ........ $136,655 $245,034 $ 41,492 $423,181
(1) Based on scheduled principal repayments.
(2) Includes demand loans, past due loans and overdrafts.
As of September 30, 2000, loans with maturities over one year consisted of
approximately $249,181,000 in fixed rate loans and $37,345,000 in variable rate
loans. The loan maturities noted above are based on the contractual provisions
of the individual loans. Rollovers and borrower requests are handled on a
case-by-case basis.
NONPERFORMING LOANS
Nonperforming loans include: (a) loans accounted for on a nonaccrual basis;
(b) accruing loans contractually past due ninety days or more as to interest or
principal payments; and loans not included in (a) and (b) above which are
defined as "renegotiated loans".
The following table presents information concerning the aggregate amount of
nonperforming loans at September 30, 2000 and December 31, 1999 (in thousands):
September 30, December 31,
2000 1999
Nonaccrual loans $1,564 $1,430
Loans past due ninety days
or more and still accruing 792 366
Renegotiated loans which are
performing in accordance
with revised terms 237 81
Total Nonperforming Loans $2,593 $1,877
The Company's policy generally is to discontinue the accrual of interest
income on any loan for which principal or interest is ninety days past due and
when, in the opinion of management, there is reasonable doubt as to the timely
collection of interest or principal. Nonaccrual loans are returned to accrual
status when, in the opinion of management, the financial position of the
borrower indicates there is no longer any reasonable doubt as to the timely
collection of interest or principal.
LOAN QUALITY AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents management's best estimate of the
reserve necessary to adequately cover probable losses in the loan portfolio. The
provision for loan losses is the charge against current earnings that is
determined by management as the amount needed to maintain an adequate allowance
for loan losses. In determining the adequacy of the allowance for loan losses,
and therefore the provision to be charged to current earnings, management relies
predominantly on a disciplined credit review and approval process which extends
to the full range of the Company's credit exposure. The review process is
directed by overall lending policy and is intended to identify, at the earliest
possible stage, borrowers who might be facing financial difficulty. Once
identified, the magnitude of exposure to individual borrowers is quantified in
the form of specific allocations of the allowance for loan losses. Collateral
values are considered by management in the determination of such specific
allocations. Additional factors considered by management in evaluating the
overall adequacy of the allowance include historical net loan losses, the level
and composition of nonaccrual, past due and renegotiated loans and the current
economic conditions in the region where the Company operates.
Management recognizes that there are risk factors which are inherent in the
Company's loan portfolio. All financial institutions face risk factors in their
loan portfolios because risk exposure is a function of the business. The
Company's operations (and therefore its loans) are concentrated in east central
Illinois, an area where agriculture is the dominant industry. Accordingly,
lending and other business relationships with agriculture-based businesses are
critical to the Company's success. At September 30, 2000, the Company's loan
portfolio included $67.1 million of loans to borrowers whose businesses are
directly related to agriculture. The balance remained stable from $59.5 million
at December 31, 1999. While the Company adheres to sound underwriting practices
including collateralization of loans, an extended period of low commodity prices
and/or significantly reduced yields on crops could nevertheless result in an
increase in the level of problem agriculture loans.
Loan loss experience for the nine month period ended September 30, 2000 and
1999, are summarized as follows (dollars in thousands):
September 30,
2000 1999
Average loans outstanding,
net of unearned income ............ $403,638 $351,144
Allowance-beginning of period ....... $ 2,939 $ 2,715
Balance of acquired branches ........ -- 150
Charge-offs:
Real estate-mortgage ................ 18 1
Commercial, financial & agricultural 55 275
Installment ......................... 115 68
Total charge-offs ................. 188 344
Recoveries:
Real estate-mortgage ................ 1 1
Commercial, financial & agricultural 16 10
Installment ......................... 14 17
Total recoveries .................. 31 28
Net charge-offs ..................... 157 316
Provision for loan losses ........... 400 450
Allowance-end of period ............. $ 3,182 $ 2,999
Ratio of net charge-offs to
average loans ..................... .04% .09%
Ratio of allowance for loan losses to
loans outstanding (less unearned
interest at end of period) ........ .75% .79%
Ratio of allowance for loan losses
to nonperforming loans ............ 122.7% 115.8%
The Company minimizes credit risk by adhering to sound underwriting and
credit review policies. These policies are reviewed at least annually, and
changes are approved by the board of directors. Senior management is actively
involved in business development efforts and the maintenance and monitoring of
credit underwriting and approval. The loan review system and controls are
designed to identify, monitor and address asset quality problems in an accurate
and timely manner. On a monthly basis, the board of directors reviews the status
of problem loans. In addition to internal policies and controls, regulatory
authorities periodically review asset quality and the overall adequacy of the
allowance for loan losses.
During the first nine months of 2000, the Company had net charge-offs of
$157,000, compared to $316,000 for the same period in 1999. At September 30,
2000, the allowance for loan losses amounted to $3,182,000, or .75% of total
loans, and 122.7% of nonperforming loans. At September 30, 1999, the allowance
was $2,999,000, or .79% of total loans, and 115.8% of nonperforming loans.
SECURITIES
The Company's overall investment goal is to maximize earnings while
maintaining liquidity in securities having minimal credit risk. The types and
maturities of securities purchased are primarily based on the Company's current
and projected liquidity and interest rate sensitivity positions. The following
table sets forth the amortized cost of the securities for September 30, 2000 and
December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 90,824 58% $ 92,180 58%
Obligations of states and
political subdivisions 32,239 20% 30,281 19%
Mortgage-backed securities 29,002 18% 32,578 21%
Other securities 5,825 4% 2,579 2%
Total securities $157,890 100% $157,618 100%
</TABLE>
At September 30, 2000, the Company's investment portfolio showed a slight
increase in obligations of states and political subdivisions and other
securities. While the volume of mortgage-backed securities decreased, all other
types of securities remained consistent.
The amortized cost, gross unrealized gains and losses and estimated fair
values for available-for- sale and held-to-maturity securities by major security
type at September 30, 2000 and December 31, 1999 were as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
September 30, 2000 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities and obligations
of U.S. Government corporations & agencies $ 90,824 $ 6 $ (2,894) $ 87,936
Obligations of states and political
subdivisions ............................. 29,137 47 (775) 28,409
Mortgage-backed securities ................ 29,002 266 (405) 28,863
Federal Home Loan Bank stock .............. 2,660 -- -- 2,660
Other securities .......................... 3,165 -- (32) 3,133
Total available-for-sale ................. $154,788 $ 319 $ (4,106) $151,001
Held-to-maturity:
Obligations of states and political
subdivisions ............................. $ 3,102 $ 20 $ (13) $ 3,109
DECEMBER 31, 1999
Available-for-sale:
U.S. Treasury securities and obligations
of U.S. Government corporations & agencies $ 92,180 $ -- $ (3,748) $ 88,432
Obligations of states and political
subdivisions ............................. 28,149 49 (1,108) 27,090
Mortgage-backed securities ................ 32,578 58 (580) 32,056
Federal Home Loan Bank stock .............. 1,913 -- -- 1,913
Other securities .......................... 666 -- -- 666
Total available-for-sale ................ $155,486 $ 107 $ (5,436) $150,157
Held-to-maturity:
Obligations of states and political
subdivisions ............................. $ 2,132 $ 8 $ (63) $ 2,077
</TABLE>
The following table indicates the expected maturities of investment
securities classified as available-for- sale and held-to-maturity, presented at
amortized cost, at September 30, 2000 (dollars in thousands) and the weighted
average yield for each range of maturities. Mortgage-backed securities are aged
according to their weighted average life. All other securities are shown at
their contractual maturity.
<TABLE>
<CAPTION>
ONE AFTER 1 AFTER 5 AFTER
YEAR THROUGH THROUGH TEN
OR LESS 5 YEARS 10 YEARS YEARS TOTAL
<S> <C> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies .... $ 4,000 $ 78,087 $ 4,496 $ 4,242 $ 90,824
Obligations of state and
political subdivisions ....... 1,513 4,673 13,070 9,882 29,137
Mortgage-backed securities ..... 214 1,411 1,307 26,070 29,002
Other securities ............... -- -- -- 5,825 5,825
Total Investments .............. $ 5,727 $ 84,171 $ 18,873 $ 46,019 $154,788
Weighted average yield ......... 5.52% 5.79% 5.14% 6.57% 5.95%
Full tax-equivalent yield ...... 6.24% 5.91% 6.71% 7.11% 6.40%
Held-to-maturity:
Obligations of state and
political subdivisions ....... $ 410 $ 1,376 $ 675 $ 641 $ 3,102
Weighted average yield ......... 5.07% 5.08% 5.49% 5.44% 5.25%
Full tax-equivalent yield ...... 7.69% 7.70% 8.32% 8.25% 7.95%
</TABLE>
The weighted average yields are calculated on the basis of the cost and
effective yields weighted for the scheduled maturity of each security. Full
tax-equivalent yields have been calculated using a 34% tax rate.
The maturities of, and yields on, mortgage-backed securities have been
calculated using actual repayment history. However, where securities have call
features, and have a market value in excess of par value, the call date has been
used to determine the expected maturity.
With the exception of obligations of the U.S. Treasury and other U.S.
Government agencies and corporations, there were no investment securities of any
single issuer the book value of which exceeded 10% of stockholders' equity at
September 30, 2000.
Investment securities carried at approximately $135,827,000 and
$124,368,000 at June 30, 2000 and December 31, 1999, respectively, were pledged
to secure public deposits and repurchase agreements and for other purposes as
permitted or required by law.
DEPOSITS
Funding the Company's earning assets is substantially provided by a
combination of consumer, commercial and public fund deposits. The Company
continues to focus its strategies and emphasis on retail core deposits, the
major component of funding sources. The following table sets forth the average
deposits and weighted average rates for the nine months ended September 30, 2000
and for the year ended December 31, 1999 (dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
<S> <C> <C> <C> <C>
Demand deposits:
Non-interest bearing . $ 62,148 -- $ 60,557 --
Interest bearing ..... 163,440 3.07% 147,753 2.58%
Savings ................ 39,891 2.39% 40,875 2.31%
Time deposits .......... 222,889 5.33% 225,451 5.09%
Total average deposits $488,368 3.65% $474,636 3.42%
</TABLE>
The following table sets forth the maturity of time deposits of $100,000 or
more at September 30, 2000 and December 31, 1999 (in thousands):
SEPTEMBER 30, December 31,
2000 1999
3 months or less ....... $18,279 $16,915
Over 3 through 6 months 12,647 11,708
Over 6 through 12 months 6,809 11,444
Over 12 months ......... 6,088 3,854
Total ................ $43,823 $43,921
OTHER BORROWINGS
Other borrowings consist of securities sold under agreements to repurchase,
Federal Home Loan Bank advances, and federal funds purchased. Information
relating to other borrowings as of September 30, 2000 and December 31, 1999 is
presented below (in thousands):
September 30, December 31,
2000 1999
Securities sold under agreements to repurchase $22,676 $32,308
Federal Home Loan Bank advances:
Overnight .................................. 40,900 3,000
Fixed term - due after one year ............ 12,300 18,500
Federal funds purchased ...................... 500 1,175
Total ...................................... $76,376 $54,983
Average interest rate at end of period ..... 6.40% 4.86%
Maximum Outstanding at any Month-end
Securities sold under agreements to repurchase $27,219 $32,308
Federal Home Loan Bank advances:
Overnight .................................. 44,000 18,000
Fixed term - due after one year ............ 13,000 20,500
Federal funds purchased ...................... 1,000 1,175
Total ...................................... $85,219 $71,983
Averages for the Period Ended
Securities sold under agreements to repurchase $23,349 $22,063
Federal Home Loan Bank advances:
Overnight .................................. 25,214 1,486
Fixed term - due after one year ............ 10,345 17,116
Federal funds purchased ...................... 1,223 345
Total ...................................... $60,131 $41,010
Average interest rate during the period .... 6.03% 4.65%
Securities sold under agreements to repurchase are short-term obligations
of First Mid Bank. First Mid Bank collateralizes these obligations with certain
government securities which are direct obligations of the United States or one
of its agencies. First Mid Bank offers these retail repurchase agreements as a
cash management service to its corporate customers.
Federal Home Loan Bank advances represent borrowings by First Mid Bank to
economically fund loan demand. This loan demand was previously funded primarily
through time deposits by the State of Illinois. The fixed term advances consists
primarily of the following:
* $5 million advance with a 5- year maturity, no call option by the
Federal Home Loan Bank for one year, first call 3/20/01, and an
interest rate of 6.16%.
* $5 million advance with a 5- year maturity, no call option by the
Federal Home Loan Bank for six months and quarterly thereafter, first
call 6/6/01, and an interest rate of 6.12%.
* $2.3 million advance with a 5- year maturity, no call option by the
Federal Home Loan Bank for nine months and quarterly thereafter, first
call 1/7/01, and an interest rate of 6.10%.
INTEREST RATE SENSITIVITY
The Company seeks to maximize its net interest margin within an acceptable
level of interest rate risk. Interest rate risk can be defined as the amount of
forecasted net interest income that may be gained or lost due to favorable or
unfavorable movements in interest rates. Interest rate risk, or sensitivity,
arises when the maturity or repricing characteristics of assets differ
significantly from the maturity or repricing characteristics of liabilities.
The Company monitors its interest rate sensitivity position to maintain a
balance between rate sensitive assets and rate sensitive liabilities. This
balance serves to limit the adverse effects of changes in interest rates. The
Company's asset/liability management committee oversees the interest rate
sensitivity position and directs the overall allocation of funds.
In the banking industry, a traditional measurement of interest rate
sensitivity is known as "GAP" analysis, which measures the cumulative
differences between the amounts of assets and liabilities maturing or repricing
at various intervals. The following table sets forth the Company's interest rate
repricing gaps for selected maturity periods at September 30, 2000 (in
thousands):
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF MONTHS UNTIL NEXT REPRICING OPPORTUNITY
0-1 1-3 3-6 6-12 12+
<S> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Federal funds sold ................... $ 112 $ -- $ -- $ -- $ --
Taxable investment securities ........ 13,193 8,820 9,859 8,729 81,991
Nontaxable investment securities ..... -- 2,465 101 395 28,550
Loans ................................ 51,218 57,884 56,478 44,589 213,015
Total .............................. $ 64,523 $ 69,169 $ 66,438 $ 53,710 $ 323,555
INTEREST BEARING LIABILITIES:
Savings and N.O.W. accounts .......... 151,209 -- -- -- --
Money market accounts ................ 55,125 -- -- -- --
Other time deposits .................. 36,944 35,520 43,014 49,637 58,298
Other borrowings ..................... 63,532 -- -- -- 12,345
Long-term debt ....................... 4,325 -- -- -- --
Total .............................. $ 311,135 $ 35,520 $ 43,014 $ 49,637 $ 70,643
Periodic GAP ....................... $(246,612) $ (33,649) $ (23,424) $ 4,073 $ 252,913
Cumulative GAP ..................... $(246,612) $(212,963) $(189,539) $(185,466) $ 67,447
GAP as a % of interest earning assets:
Periodic ........................... (42.7%) (5.8%) (4.1%) 0.7% 43.8%
Cumulative ......................... (42.7%) (36.9%) (32.8%) (32.1%) 11.7%
</TABLE>
At September 30, 2000, the Company was liability sensitive on a cumulative
basis through the twelve-month time horizon. Accordingly, future increases in
interest rates, if any, could have an unfavorable effect on the net interest
margin. The Company's ability to lag the market in repricing deposits in a
rising interest rate environment eases the implied liability sensitivity of the
Company.
Interest rate sensitivity using a static GAP analysis basis is only one of
several measurements of the impact of interest rate changes on net interest
income used by the Company. Its actual usefulness in assessing the effect of
changes in interest rates varies with the constant changes which occur in the
composition of the Company's earning assets and interest-bearing liabilities.
For this reason, the Company uses financial models to project interest income
under various rate scenarios and assumptions relative to the prepayments,
reinvestment and rollovers of assets and liabilities, of which First Mid Bank
represents substantially all of the Company's rate sensitive assets and
liabilities.
CAPITAL RESOURCES
At September 30, 2000, the Company's stockholders' equity increased
$3,645,000 or 7.1% to $55,163,000 from $51,518,000 as of December 31, 1999.
During the first nine months of 2000, net income contributed $4,209,000 to
equity before the payment of dividends to common stockholders. The change in net
unrealized gain/loss on available-for-sale investment securities increased
stockholders' equity by $945,000, net of tax.
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Bank holding companies follow
minimum regulatory requirements established by the Federal Reserve Board, First
Mid Bank follows similar minimum regulatory requirements established for
national banks by the Office of the Comptroller of the Currency. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary action by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements.
Quantitative measures established by each regulatory agency to ensure
capital adequacy require the reporting institutions to maintain a minimum total
risk-based capital ratio of 8% and a minimum leverage ratio of 3% for the most
highly-rated banks that do not expect significant growth. All other institutions
are required to maintain a minimum leverage ratio of 4%. Management believes
that as of September 30, 2000 and December 31, 1999 all capital adequacy
requirements have been met by the Company and First Mid Bank.
As of September 30, 2000, the most recent notification from the primary
regulators categorized the Company and First Mid Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as well
capitalized, minimum total risk- based, Tier 1 risk-based and Tier 1 leverage
ratios must be maintained as set forth in the table. There are no conditions or
events since that notification that management believes have changed these
categories.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
SEPTEMBER 30, 2000
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to risk-weighted assets)
Company ................. $48,220 11.77% $32,789 > 8.00% $40,986 > 10.00%
First Mid Bank .......... 49,228 12.11% 32,511 > 8.00% 40,639 > 10.00%
Tier 1 Capital
(to risk-weighted assets)
Company ................. 45,038 10.99% 16,394 > 4.00% 24,591 > 6.00%
First Mid Bank .......... 46,046 11.33% 16,255 > 4.00% 24,383 > 6.00%
Tier 1 Capital
(to average assets)
Company ................. 45,038 7.32% 24,595 > 4.00% 30,744 > 5.00%
First Mid Bank .......... 46,046 7.52% 24,479 > 4.00% 30,598 > 5.00%
</TABLE>
<TABLE>
<CAPTION>
TO BE WELL
<S> <C> <C> <C> <C> <C> <C>
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
DECEMBER 31, 1999
Total Capital
(to risk-weighted assets)
Company ................. $44,381 11.98% $29,648 > 8.00% $37,060 > 10.00%
First Mid Bank .......... 45,409 12.40 29,305 > 8.00% 36,631 > 10.00%
Tier 1 Capital
(to risk-weighted assets)
Company ................. 41,442 11.18 14,824 > 4.00% 22,236 > 6.00%
First Mid Bank .......... 42,470 11.59 14,652 > 4.00% 21,979 > 6.00%
Tier 1 Capital
(to average assets)
Company ................. 41,442 6.96 24,347 > 4.00% 30,434 > 5.00%
First Mid Bank .......... 42,470 7.19 23,630 > 4.00% 29,538 > 5.00%
</TABLE>
Banks and bank holding companies are generally expected to operate at or
above the minimum capital requirements. These ratios are in excess of regulatory
minimums and will allow the Company to operate without capital adequacy
concerns.
STOCK PLANS
The Company has four plans through which Company stock may be purchased by
participants, the Deferred Compensation Plan, the First Retirement and Savings
Plan, the Dividend Reinvestment Plan, and the Stock Incentive Plan. For more
detailed information on these plans, refer to the Company's 1999 Form 10-K.
* The DEFERRED COMPENSATION PLAN was effective as of September, 1984. Its
purpose is to allow directors, advisory directors, and key officers to
defer a portion of the fees and cash compensation paid by the Company as a
means of maximizing the effectiveness and flexibility of compensation
arrangements.
* The FIRST RETIREMENT AND SAVINGS PLAN was effective beginning in 1985.
Employees are eligible to participate in this plan after nine months of
service to the Company.
* The DIVIDEND REINVESTMENT PLAN was effective as of October, 1994. The
purpose of this plan is to provide participating stockholders with a simple
and convenient method of investing cash common stock dividends paid by the
Company into newly-issued common shares of the Company. All holders of
record of the Company's common stock are eligible to participate. This plan
is administered by Harris Trust and Savings Bank and offers a way to
increase one's investment in the Company.
* The STOCK INCENTIVE PLAN was established by the Company in December, 1997,
and is intended to provide a means whereby directors and certain officers
can acquire shares of the Company's common stock. A maximum of 100,000
shares have been authorized under this plan. Options to acquire shares will
be awarded at an exercise price equal to the fair market value of the
shares on the date of grant. Options to acquire shares have a 10- year
term. Options granted to employees vest over a four year period and those
options granted to directors vest at the time they are issued.
The Company announced a Stock Repurchase Program in August, 1998 to allow
the Company to repurchase up to 3% of its common stock. In March, 2000, the
Board of Directors of the Company authorized the repurchase of 5% in addition to
the original 3% of its common stock under the current Stock Repurchase Program.
The shares will be repurchased at the most recent market price of the stock. The
Company repurchased 51,843 shares (2.2%) at a total price of $1,637,000 during
the nine months ended September 30, 2000 and 9,696 shares (.4%) at a total price
of $337,000 for the year ended December 31, 1999. A total of 75,078 shares have
been repurchased from the inception of this program to September 30, 2000, and
are held in treasury.
LIQUIDITY
Liquidity represents the ability of the Company and its subsidiaries to
meet the requirements of customers for loans and deposit withdrawals. Liquidity
management focuses on the ability to obtain funds economically for these
purposes and to maintain assets which may be converted into cash at minimal
costs. Other sources for cash include deposits of the State of Illinois and
Federal Home Loan Bank advances. At September 30, 2000, the excess collateral at
the Federal Home Loan Bank will support approximately $47 million of additional
advances.
Management monitors its expected liquidity requirements carefully, focusing
primarily on cash flows from:
* lending activities, including loan commitments, letters of credit and
mortgage prepayment assumptions.
* deposit activities, including seasonal demand of private and public funds.
* investing activities, including prepayments of mortgage-backed securities
and call provisions on U.S. Government Treasuries and Agencies.
* operating activities, including scheduled debt repayments and dividends to
shareholders.
EFFECTS OF INFLATION
Unlike industrial companies, virtually all of the assets and liabilities of
the Company are monetary in nature. As a result, interest rates have a more
significant impact on the Company's performance than the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or experience the same magnitude of changes as goods and services,
since such prices are effected by inflation. In the current economic
environment, liquidity and interest rate adjustments are features of the
Company's assets and liabilities which are important to the maintenance of
acceptable performance levels. The Company attempts to maintain a balance
between monetary assets and monetary liabilities, over time, to offset these
potential effects.
FUTURE ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" ("SFAS 133"). SFAS 133
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts. Under the standard, entities
are required to carry all derivative instruments in the balance sheet at fair
value. The accounting for changes in fair value of a derivative instrument
depends on whether it has been designated and qualifies as part of a hedging
relationship and, if so, on the reason for holding it. The gain or loss due to
changes in fair value is recognized in earnings or as other comprehensive income
in the statement of stockholders' equity, depending on the type of instrument
and whether or not it is considered a hedge. In June, 1999, the FASB issued SFAS
137, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES -- DEFERRAL
OF THE EFFECTIVE DATE OF STATEMENT NO. 133." This statement defers the adoption
of SFAS 133 to fiscal years beginning after June 15, 2000. The FASB issued SFAS
No. 138, "ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING
ACTIVITIES, AN AMENDMENT OF FASB STATEMENT NO. 133" in June 2000, which
addressed various implementation issues relating to SFAS 133. Adoption of the
above statements is not expected to have a material impact on the Company's
financial position, results of operation or liquidity.
Statement of Financial Accounting Standards ("SFAS") No. 140 "ACCOUNTING
FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF
LIABILITIES", was issued by the Financial Accounting Standards Board (FASB) in
September of 2000. SFAS No. 140 supersedes and replaces FASB SFAS No. 125,
"ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES". Accordingly, SFAS No. 140 is now the authoritative accounting
literature for transfers and servicing of financial assets and extinguishments
of liabilities. SFAS No. 140 also includes several additional disclosure
requirements in the area of securitized financial assets and collateral
arrangements. The provisions of SFAS No. 140 related to transfers of financial
assets are to be applied to all transfers of financial assets occurring after
March 31, 2001. The collateral recognition and disclosure provisions in SFAS No.
140 are effective for fiscal years ending after December 15, 2000. The Company
anticipates that the adoption of SFAS No. 140 will not have a material impact on
the Company's results of operations.
PENDING LITIGATION
Heartland Savings Bank, a subsidiary of the Company that merged with First
Mid Bank during 1997, filed a complaint on December 5, 1995, against the U.S.
Government which is now pending in the U.S. Court of Federal Claims in
Washington D.C. Refer to "PART II, ITEM 1, LEGAL PROCEEDINGS".
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the market risks faced by the Company
since December 31, 1999. For information regarding the Company's market risk,
refer to the Company's Annual Report on Form 10- K for the year ended December
31, 1999.
PART II
ITEM 1. LEGAL PROCEEDINGS
Since First Mid Bank acts a depository of funds, it is named from time to
time as a defendant in lawsuits (such as garnishment proceedings) involving
claims to the ownership of funds in particular accounts. Management believes
that all such litigation as well as other pending legal proceedings constitute
ordinary routine litigation incidental to the business of First Mid Bank and
that such litigation will not materially adversely affect the Company's
consolidated financial condition.
In addition to the normal proceedings referred to above, Heartland Savings
Bank ("Heartland"), a subsidiary of the Company that merged with First Mid Bank
during 1997, filed a complaint on December 5, 1995, against the U.S. Government
which is now pending in the U.S. Court of Federal Claims in Washington D.C. This
complaint relates to Heartland's interest as successor to Mattoon Federal
Savings and Loan Association which incurred a significant amount of supervisory
goodwill when it acquired Urbana Federal Savings and Loan in 1982. The complaint
alleges that the U.S. Government breached its contractual obligations when, in
1989, it issued new rules which eliminated supervisory goodwill from inclusion
in regulatory capital. On August 6, 1998, First Mid Bank filed a motion with the
U.S. Court of Federal Claims to grant summary judgement on liability for breach
of contract in this matter. On August 13, 1998, the U.S. Government filed a
motion to stay such proceedings. At this time, it is too early to tell if First
Mid Bank will prevail in its motion and, if so, what damages, if any, may be
recovered.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits: The exhibits required by Item 601 of Regulation S-K and filed
herewith are listed in the Exhibit Index which follows the Signature Page and
immediately precedes the exhibits filed.
(b) Reports on Form 8-K: There were no reports on Form 8-K filed by the Company
during the quarter ended September 30, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FIRST MID-ILLINOIS BANCSHARES, INC.
(Company)
/s/ William S. Rowland
-------------------------------------*
William S. Rowland
President and Chief Executive Officer
/s/ Michael L. Taylor
-------------------------------------*
Michael L. Taylor
Chief Financial Officer
Dated: November 10, 2000
*---------------------*
<PAGE>
EXHIBIT INDEX TO FORM 10-Q
EXHIBIT
NUMBER DESCRIPTION AND FILING OR INCORPORATION REFERENCE
11.1 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(Filed herewith)
27.1 FINANCIAL DATA SCHEDULE
(Filed herewith)
