-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Opt7/fbd2VLhDHD1NgNSXnfyEctXHhTHmDbY+fKx52qYy1PzAfS7lJqtRZHwLMvh GNWFEIW4/1ldZ5sUaUDiBQ== 0000700565-00-000012.txt : 20000515 0000700565-00-000012.hdr.sgml : 20000515 ACCESSION NUMBER: 0000700565-00-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST MID ILLINOIS BANCSHARES INC CENTRAL INDEX KEY: 0000700565 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 371103704 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-13368 FILM NUMBER: 627585 BUSINESS ADDRESS: STREET 1: 1515 CHARLESTON AVE STREET 2: PO BOX 499 CITY: MATTOON STATE: IL ZIP: 61938 BUSINESS PHONE: 2172347454 MAIL ADDRESS: STREET 1: 1515 CHARLESTON AVENUE STREET 2: PO BOX 499 CITY: MATTOON STATE: IL ZIP: 61938 10-Q 1 1ST QUARTER 10-Q 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, 2000 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 Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] As of May 12, 2000 2,255,353 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) 2000 1999 ASSETS Cash and due from banks: Non-interest bearing .............................................. $ 15,994 $ 21,054 Interest bearing .................................................. 131 78 Federal funds sold .................................................. 516 710 Cash and cash equivalents ......................................... 16,641 21,842 Investment securities: Available-for-sale, at fair value ................................. 148,366 150,157 Held-to-maturity, at amortized cost (estimated fair value of $3,083 and $2,077 at March 31, 2000 and December 31, 1999, respectively) ............................ 3,132 2,132 Loans ............................................................... 397,542 388,319 Less allowance for loan losses ...................................... 3,069 2,939 Net loans ......................................................... 394,473 385,380 Premises and equipment, net ......................................... 16,049 16,153 Intangible assets, net .............................................. 13,038 13,340 Other assets ........................................................ 10,866 12,099 TOTAL ASSETS ...................................................... $ 602,565 $ 601,103 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing .............................................. $ 63,609 $ 60,555 Interest bearing .................................................. 420,153 424,456 Total deposits .................................................... 483,762 485,011 Federal funds purchased ............................................. -- 1,175 Securities sold under agreements to repurchase ...................... 23,883 32,308 Federal Home Loan Bank advances ..................................... 33,300 21,500 Long-term debt ...................................................... 4,325 4,325 Other liabilities ................................................... 4,702 5,266 TOTAL LIABILITIES ................................................. 549,972 549,585 Stockholders' Equity: Common stock, $4 par value; authorized 6,000,000 shares; issued 2,312,901 shares in 2000 and 2,302,022 shares in 1999 .......................................... 9,252 9,208 Additional paid-in-capital .......................................... 11,940 11,608 Retained earnings ................................................... 36,264 34,835 Deferred compensation ............................................... 1,179 1,123 Accumulated other comprehensive loss ................................ (3,317) (3,265) Less treasury stock at cost, 45,858 shares in 2000 and 25,235 shares in 1999 ................................. (2,725) (1,991) TOTAL STOCKHOLDERS' EQUITY .......................................... 52,593 51,518 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................... $ 602,565 $ 601,103 See accompanying notes to unaudited consolidated financial statements
CONSOLIDATED STATEMENTS OF INCOME (unaudited) THREE MONTHS ENDED (In thousands, except per share data) March 31, 2000 1999 INTEREST INCOME: Interest and fees on loans .......................................... $ 8,165 $ 6,869 Interest on investment securities ................................... 2,288 2,054 Interest on federal funds sold ...................................... 37 55 Interest on deposits with other financial institutions ...................................... 1 2 Total interest income ............................................. 10,491 8,980 INTEREST EXPENSE: Interest on deposits ................................................ 4,233 3,700 Interest on securities sold under agreements to repurchase ..................................................... 289 214 Interest on Federal Home Loan Bank advances ......................... 359 245 Interest on Federal funds purchased ................................. 36 2 Interest on long-term debt .......................................... 75 70 Total interest expense ............................................ 4,992 4,231 Net interest income ............................................... 5,499 4,749 Provision for loan losses ........................................... 150 150 Net interest income after provision ............................... 5,349 4,599 OTHER INCOME: Trust revenues ...................................................... 513 481 Brokerage revenues .................................................. 137 120 Service charges ..................................................... 592 500 Mortgage banking income ............................................. 62 329 Other ............................................................... 306 338 Total other income ................................................ 1,610 1,768 OTHER EXPENSE: Salaries and employee benefits ...................................... 2,510 2,253 Net occupancy and equipment expense ................................. 878 769 Amortization of intangible assets ................................... 302 191 Stationary and supplies ............................................. 148 174 Legal and professional .............................................. 170 224 Marketing and promotion ............................................. 157 119 Other ............................................................... 731 638 Total other expense ............................................... 4,896 4,368 Income before income taxes .......................................... 2,063 1,999 Income taxes ........................................................ 633 643 Net income ........................................................ $ 1,430 $ 1,356 Per common share data: Basic earnings per share ............................................ $ .63 $ .64 Diluted earnings per share .......................................... $ .63 $ .60 See accompanying notes to unaudited consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED March 31, (In thousands) 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net income .......................................................... $ 1,430 $ 1,356 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses ......................................... 150 150 Depreciation, amortization and accretion, net ..................... 703 541 Gain on sale of securities, net ................................... -- -- (Gain) loss on sale of other real property owned, net ............. 16 (34) Gain on sale of mortgage loans held for sale, net ................. (45) (307) Origination of mortgage loans held for sale ....................... (3,062) (14,830) Proceeds from sale of mortgage loans held for sale ................ 3,030 21,905 Decrease in other assets .......................................... 1,231 592 Increase in other liabilities ..................................... 153 338 Net cash provided by operating activities ........................... 3,606 9,711 CASH FLOWS FROM INVESTING ACTIVITIES: Capitalization of mortgage servicing rights ......................... (9) (7) Purchases of premises and equipment ................................. (363) (339) Net (increase) decrease in loans .................................... (9,166) 10,567 Proceeds from sales of: Securities available-for-sale ..................................... -- -- Proceeds from maturities of: Securities available-for-sale ..................................... 1,853 15,205 Securities held-to-maturity ....................................... -- 366 Purchases of: Securities available-for-sale ..................................... -- (13,282 Securities held-to-maturity ....................................... (1,086) (261) Net cash provided by (used in) investing activities ................. (8,771) 12,249 CASH FLOWS FROM FINANCING ACTIVITIES: Net decrease in deposits ............................................ (1,249) (23,983) Decrease in repurchase agreements ................................... (8,425) (6,435) Decrease in federal funds purchased ................................. (1,175) -- Increase in short-term borrowings ................................... 17,300 800 Repayment of long-term borrowings ................................... (5,500) (375) Proceeds from issuance of common stock .............................. -- 127 Purchase of treasury stock .......................................... (677) (80) Dividends paid on common stock ...................................... (310) (292) Net cash (used in) financing activities ............................. (36) (30,238) Decrease in cash and cash equivalents ............................... (5,201) (8,278) Cash and cash equivalents at beginning of period .................... 21,842 21,772 Cash and cash equivalents at end of period .......................... $ 16,641 $ 13,494 ADDITIONAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest .......................................................... $ 4,852 $ 3,965 Income taxes ...................................................... 30 -- Loans transferred to real estate owned .............................. -- 58 Dividends reinvested in common shares ............................... 374 270 See accompanying notes to unaudited consolidated financial statements
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 March 31, 2000 and 1999, and all such adjustments are of a normal recurring nature. The results of the interim period ended March 31, 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 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 months ended March 31, 2000 and 1999 is as follows: THREE MONTHS ENDED March 31, (In thousands) ...................... 2000 1999 Net income .......................... $ 1,430 $ 1,356 Other comprehensive income(loss): Unrealized losses during the period (79) (847) Tax effect ........................ 27 288 Comprehensive income ................ $ 1,378 $ 797 EARNINGS PER SHARE Income for Basic Earnings per Share ("EPS") is adjusted for dividends attributable to preferred stock and is based on the weighted average number of common shares outstanding. Diluted EPS is computed by using the weighted average number of common shares outstanding, increased by the assumed conversion of the convertible preferred stock and the assumed conversion of the stock options. 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 months ended March 31, 2000 and 1999 are as follows: THREE MONTHS ENDED March 31, 2000 1999 BASIC EARNINGS PER SHARE: Net income ................................ $1,430,000 $1,356,000 Less preferred stock dividends ............. -- (71,000 Net income available to common stockholders $1,430,000 $1,285,000 Weighted average common shares outstanding . 2,277,737 2,015,105 Basic Earnings per Common Share ............ $ .63 $ .64 DILUTED EARNINGS PER SHARE: Net income available to common stockholders $1,430,000 $1,285,000 Assumed conversion of preferred stock ...... -- 71,000 Net income available to common stock- holders after assumed conversion ......... $1,430,000 $1,356,000 Weighted average common shares outstanding . 2,277,737 2,015,105 Assumed conversion of stock options ........ 4,856 7,128 Assumed conversion of preferred stock ...... -- 248,179 Diluted weighted average common shares outstanding ....................... 2,282,593 2,270,412 Diluted Earnings per Common Share .......... $ .63 $ .60 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is intended to provide a better understanding of the consolidated financial condition and results of operations of the Company and its subsidiaries for the periods ended March 31, 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 March 31, 2000 was $1,430,000 ($.63 diluted EPS), an increase of $74,000 from $1,356,000 ($.60 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. 2000 VS 1999 (in thousands) ............................................. THREE MONTHS Net interest income ........................................ $ 750 Other income, including securities transactions ............ (158) Other expenses ............................................. (528) Income taxes ............................................... 10 Increase in net income ..................................... $ 74 The following table shows the Company's annualized performance ratios for the three months ended March 31, 2000 and 1999, as compared to the performance ratios for the year ended December 31, 1999: March 31, March 31, December 31, 2000 1999 1999 Return on average assets ....... .96% 1.02% .91% Return on average equity ....... 11.03% 10.59% 10.14% Return on average common equity 11.03% 10.68% 10.08% Average equity to average assets 8.66% 9.60% 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):
THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, 2000 MARCH 31, 1999 AVERAGE AVERAGE AVERAGE AVERAGE BALANCE INTEREST RATE BALANCE INTEREST RATE ASSETS Interest-bearing deposits $ 93 $ 1 5.61% $ 161 $ 2 5.25% Federal funds sold 2,654 37 5.56% 4,599 55 4.78% Investment securities Taxable 121,912 1,926 6.32% 122,425 1,748 5.71% Tax-exempt (1) 29,755 549 7.37% 28,435 465 6.54% Loans (2)(3) 390,042 8,165 8.37% 337,216 6,869 8.15% Total earning assets 544,456 10,678 7.84% 492,836 9,139 7.42% Cash and due from banks 16,878 14,608 Premises and equipment 16,109 13,277 Other assets 24,313 15,425 Allowance for loan losses (3,005) (2,750) Total assets $598,751 $533,396 LIABILITIES AND STOCKHOLDERS' EQUITY Interest-Bearing Deposits Demand deposits $160,657 $ 1,144 2.85% $123,163 $ 707 2.30% Savings deposits 40,603 238 2.34% 37,923 208 2.19% Time deposits 224,325 2,851 5.08% 215,670 2,785 5.17% Securities sold under agreements to repurchase 23,928 289 4.83% 21,747 214 3.93% FHLB advances 24,840 359 5.78% 18,998 245 5.16% Federal funds purchased 2,370 36 6.00% 125 27 4.88% Long-term debt 4,325 75 6.96% 4.696 70 5.97% Total interest-bearing liabilities 481,048 4,992 4.15% 422,322 4,231 4.01% Demand deposits 61,269 56,097 Other liabilities 4,572 3,767 Stockholders' equity 51,863 51,210 Total liabilities & equity $598,751 $533,396 Net interest income (TE) $ 5,686 $ 4,908 Net interest spread 3.69% 3.41% Impact of non-interest bearing funds .49% .57% Net yield on interest- earning assets (TE) 4.18% 3.98% (1) Interest income and rates are presented on a tax-equivalent basis ("TE") assuming a federal income tax rate of 34%. (2) Loan fees are included in interest income and are not material. (3) Nonaccrual loans have been included in the average balances.
Changes in net interest income may also be analyzed by segregating the volume and rate components of interest income and interest expense. The following table summarizes the approximate relative contribution of changes in average volume and interest rates to changes in net interest income (TE) for the three months ended March 31, 2000 (in thousands) as compared to the three months ended March 31, 1999:
FOR THE THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO 1999 INCREASE / (DECREASE) TOTAL RATE/ CHANGE VOLUME RATE VOLUME (4) EARNING ASSETS: Interest-bearing deposits ... $ (1) $ (1) $ -- $ -- Federal funds sold .......... (18) (23) 9 (4) Investment securities: Taxable ................... 178 (8) 187 (1) Tax-exempt (1) ............ 84 22 59 3 Loans (2)(3) ................ 1,296 1,076 190 30 Total interest income ..... 1,539 1,066 445 28 INTEREST-BEARING LIABILITIES: Interest-bearing deposits Demand deposits ........... 437 216 169 52 Savings deposits .......... 30 15 14 1 Time deposits ............. 66 112 (44) (2) Securities sold under agreements to repurchase .. 75 21 49 5 FHLB advances ............... 114 75 30 9 Federal funds purchased ..... 34 28 -- 6 Long-term debt .............. 5 (6) 12 (1) Total interest expense .... 761 461 230 70 Net interest income ........ $ 778 $ 605 $ 215 $ (42) (1) Interest income and rates are presented on a tax-equivalent basis, assuming a federal income tax rate of 34%. (2) Loan fees are included in interest income and are not material. (3) Nonaccrual loans are not material and have been included in the average balances. (4) The changes in rate/volume are computed on a consistent basis by multiplying the change in rates with the change in volume.
On an tax equivalent basis, net interest income increased $778,000, or 15.9% to $5,686,000 for the three months ended March 31, 2000, from $4,908,000 for the same period in 1999. The increase in net interest income for the three months ended March 31, 2000, was primarily due to an increase in rates on earning assets combined with an increase in the volume of earning assets offset by a slight increase in the deposit rates combined with a higher deposit base. For the three months ended March 31, 2000, average earning assets increased by $51,620,000, or 10.5%, and average interest-bearing liabilities increased $58,725,000, or 13.9%, compared with average balances for the three months ended March 31, 1999. Changes in average balances, as a percent of average earnings assets, are shown below: * average loans (as a percent of average earnings assets) increased 3.2% to 71.6% for the three months ended March 31, 2000 from 68.4% for the three months ended March 31, 1999 * average securities (as a percent of average earnings assets) decreased 2.7% to 27.9% for the three months ended March 31, 2000 from 30.6% for the three months ended March 31, 1999 * net interest margin, on a tax equivalent basis, increased to 4.18% for the three months ended March 31, 2000, from 3.98% for the three months ended March 31, 1999 PROVISION FOR LOAN LOSSES The provision for loan losses for the three months ended March 31, 2000 and 1999 was $150,000. For information on loan loss experience and nonperforming loans, see the "NONPERFORMING LOANS" and "LOAN QUALITY AND ALLOWANCE FOR LOAN LOSSES" sections later in this document. OTHER INCOME An important source of the Company's revenue is derived from other income. The following table sets forth the major components of other income for the three months ended March 31, 2000 and 1999 (in thousands): THREE MONTHS ENDED 2000 1999 $ CHANGE Trust .............. $ 513 $ 481 $ 32 Brokerage .......... 137 120 17 Service charges .... 592 500 92 Mortgage banking ... 62 329 (267) Other .............. 306 338 (32) Total other income $1,610 $1,768 $ (158) * Total non-interest income decreased to $1,610,000 for the three months ended March 31, 2000, compared to $1,768,000 for the same period in 1999. * Trust revenues increased $32,000 or 6.7% to $513,000 for the three months ended March 31, 2000, compared to $481,000 for the same period in 1999. Trust assets, reported at market value, were $330 million at March 31, 2000, $324 million at December 31, 1999 and $305 million at March 31, 1999. * Revenues from brokerage and annuity sales increased $17,000 or 14.2% for the three months ended March 31, 2000, compared with the same period in 1999 as a result of increased sales of annuities. * Fees from service charges increased $92,000 or 18.4% to $592,000 for the three months ended March 31, 2000, compared to $500,000 for the same period in 1998. This increase was primarily due to an increase in the number of savings and transaction accounts and an increase in the fees charges on deposit accounts. * Mortgage banking income decreased $267,000 or 81.2% to $62,000 for the three months ended March 31, 2000, compared to $329,000 for the same period in 1999. This decrease was due to the 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. Loan sold balances are as follows: * $3.0 million (representing 41 loans) as of March 31, 2000 * $21.6 million (representing 253 loans) as of March 31, 1999 * Other income decreased $32,000 or 9.5% to $306,000 for the three months ended March 31, 2000, compared to $338,000 for the same period in 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 ended March 31, 2000 and 1999 (in thousands): THREE MONTHS ENDED 2000 1999 $ CHANGE Salaries and benefits ..... $2,510 $2,253 $ 257 Occupancy and equipment ... 878 769 109 FDIC premiums ............. 26 26 -- Amortization of intangibles 302 191 111 Stationery and supplies ... 148 174 (26) Legal and professional fees 170 224 (54) Marketing and promotion ... 157 119 38 Other operating expenses .. 705 612 93 Total other expense ..... $4,896 $4,368 $ 528 * Total non-interest expense increased to $4,896,000 for the three months ended March 31, 2000, compared to $4,368,000 for the same period in 1999. * Salaries and employee benefits, the largest component of other expense, increased $257,000 or 11.4% to $2,510,000 for the three months ended March 31, 2000, compared to $2,253,000 for the same period in 1999. This increase can be explained by: * an increase in FTE employees to 272 at March 31, 2000 from 252 at March 31, 1999, primarily due to the acquisition of Monticello, Taylorville, and DeLand branch facilities * merit increases for continuing employees * Occupancy and equipment expense increased $109,000 or 14.2% to $878,000 for the three months ended March 31, 2000, compared to $769,000 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, and Tuscola. * Amortization of intangible assets increased $111,000 or 58.1% to $302,000 for the three months ended March 31, 2000, compared to $191,000 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 $51,000 or 4.5% to $1,180,000 for the three months ended March 31, 2000, compared to $1,129,000 for the same period in 1999. INCOME TAXES Total income tax expense amounted to $633,000 for the three months ended March 31, 2000, compared to $643,000 for the same period in 1999. Effective tax rates were 30.7% and 32.2% for the periods ended March 31, 2000 and 1999. ANALYSIS OF BALANCE SHEETS LOANS The loan portfolio is the largest category of the Company's earning assets. The following table summarizes the composition of the loan portfolio as of March 31, 2000 and December 31, 1999 (in thousands): March 31, December 31, 2000 1999 Real estate - mortgage $278,212 $273,293 Commercial, financial and agricultural ... 92,950 89,176 Installment .......... 24,818 24,501 Other ................ 1,562 1,349 Total loans ........ $397,542 $388,319 At March 31, 2000, the Company had loan concentrations in agricultural industries of $59.6 million, or 15.0%, 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 $1.4 million as of March 31, 2000. The following table presents the balance of loans outstanding as of March 31, 2000, by maturities (dollars in thousands):
MATURITY (1) OVER 1 ONE YEAR THROUGH OVER OR LESS (2 5 YEARS 5 YEARS TOTAL Real estate - mortgage ...... $ 52,864 $181,452 $ 43,896 $278,212 Commercial, financial and agricultural .......... 60,017 29,556 3,377 92,950 Installment ................. 5,717 18,373 728 24,818 Other ....................... 575 451 536 1,562 Total loans ............... $119,173 $229,832 $ 48,537 $397,542 (1) Based on scheduled principal repayments (2) Includes demand loans, past due loans and overdrafts.
As of March 31, 2000, loans with maturities over one year consisted of $243,053,000 in fixed rate loans and $35,316,000 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 March 31, 2000 and December 31, 1999 (in thousands): March 31, December 31, 2000 1999 Nonaccrual loans ........... $1,610 $1,430 Loans past due ninety days or more and still accruing 1,303 366 Renegotiated loans which are performing in accordance with revised terms ....... 77 81 Total Nonperforming Loans .. $2,990 $1,877 Approximately $705,000 of the total loans past due ninety days or more and still accruing are commercial and commercial real estate loans to three unrelated borrowers. Management is closely monitoring the status of these loans. 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 losses inherent in the loan portfolio. The provision for loan losses is the charge against current earnings that is determined by management as the amount needed to maintain an adequate allowance for loan losses. In determining the adequacy of the allowance for loan losses, and therefore the provision to be charged to current earnings, management relies predominantly on a disciplined credit review and approval process which extends to the full range of the Company's credit exposure. The review process is directed by overall lending policy and is intended to identify, at the earliest possible stage, borrowers who might be facing financial difficulty. Once identified, the magnitude of exposure to individual borrowers is quantified in the form of specific allocations of the allowance for loan losses. Collateral values are considered by management in the determination of such specific allocations. Additional factors considered by management in evaluating the overall adequacy of the allowance include historical net loan losses, the level and composition of nonaccrual, past due and renegotiated loans and the current economic conditions in the region where the Company operates. Management recognizes that there are risk factors which are inherent in the Company's loan portfolio. All financial institutions face risk factors in their loan portfolios because risk exposure is a function of the business. The Company's operations (and therefore its loans) are concentrated in east central Illinois, an area where agriculture is the dominant industry. Accordingly, lending and other business relationships with agriculture-based businesses are critical to the Company's success. At March 31, 2000, the Company's loan portfolio included $59.6 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 could nevertheless result in an increase in the level of problem agriculture loans. Loan loss experience for the period ended March 31, 2000 and 1999, are summarized as follows (dollars in thousands): March 31, 2000 1999 Average loans outstanding, net of unearned income ............ $390,042 $337,216 Allowance-beginning of period ....... $ 2,939 $ 2,715 Charge-offs: Real estate-mortgage ................ 5 -- Commercial, financial & agricultural -- 105 Installment ......................... 27 11 Total charge-offs ................. 32 116 Recoveries: Real estate-mortgage ................ 1 -- Commercial, financial & agricultural 5 5 Installment ......................... 6 6 Total recoveries .................. 12 11 Net charge-offs ..................... 20 105 Provision for loan losses ........... 150 150 Allowance-end of period ............. $ 3,069 $ 2,760 Ratio of net charge-offs to average loans ..................... .01% .03% Ratio of allowance for loan losses to loans outstanding (less unearned interest at end of period) ........ .77% .82% Ratio of allowance for loan losses to nonperforming loans ............ 102.6% 92.1% 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 three months of 2000, the Company had net charge-offs of $20,000, compared to $105,000 for the same period in 1999. At March 31, 2000, the allowance for loan losses amounted to $3,069,000, or .77% of total loans, and 102.6% of nonperforming loans. At March 31, 1999, the allowance was $2,760,000, or .82% of total loans, and 92.1% 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 March 31, 2000 and December 31, 1999 (in thousands):
MARCH 31, DECEMBER 31, 2000 1999 % OF % OF AMOUNT TOTAL AMOUNT TOTAL U.S. Treasury securities and obligations of U.S. government corporations and agencies .... $ 92,072 59% $ 92,180 58% Obligations of states and political subdivisions ....... 30,849 19% 30,281 19% Mortgage-backed securities .... 31,326 20% 32,578 21% Other securities .............. 2,666 2% 2,579 2% Total securities .......... $156,913 100% $157,618 100%
At March 31, 2000, the Company's investment portfolio showed a slight increase in obligations of states and political subdivisions. While the volume of mortgage-backed securities decreased, all other types of securities remained constant. 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, 2000 and December 31, 1999 were as follows (in thousands):
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR MARCH 31, 2000 COST GAINS LOSSES VALUE Available-for-sale: U.S. Treasury securities and obligations of U.S. Government corporations & agencies $ 92,072 $ -- $ (3,824) $ 88,248 Obligations of states and political subdivisions ............................. 27,717 39 (988) 26,768 Mortgage-backed securities ................ 31,326 49 (691) 30,684 Federal Home Loan Bank stock .............. 2,000 -- -- 2,000 Other securities .......................... 666 -- -- 666 Total available-for-sale ................. $153,781 $ 88 $ (5,503) $148,366 Held-to-maturity: Obligations of states and political subdivisions ............................. $ 3,132 $ 6 $ (55) $ 3,083 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
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, 2000 (dollars in thousands) and the weighted average yield for each range of maturities. Mortgage-backed securities are aged according to their weighted average life. All other securities are shown at their contractual maturity.
ONE AFTER 1 AFTER 5 AFTER YEAR THROUGH THROUGH TEN OR LESS 5 YEARS 10 YEARS YEARS TOTAL Available-for-sale: U.S. Treasury securities and obligations of U.S. government corporations and agencies .... $ 3,002 $ 66,255 $ 18,616 $ 4,199 $ 92,072 Obligations of state and political subdivisions ....... 1,805 2,930 11,914 11,069 27,717 Mortgage-backed securities ..... 424 1,640 1,447 27,815 31,326 Other securities ............... -- -- -- 2,666 2,666 Total Investments .............. $ 5,231 $ 70,825 $ 31,977 $ 45,748 $153,781 Weighted average yield ......... 5.58% 5.76% 5.61% 6.20% 5.84% Full tax-equivalent yield ...... 6.43% 5.83% 6.35% 6.70% 6.21% Held-to-maturity: Obligations of state and political subdivisions ....... $ 375 $ 1,281 $ 810 $ 666 $ 3,132 Weighted average yield ......... 5.04% 5.06% 5.44% 5.46% 5.24% Full tax-equivalent yield ...... 7.28% 7.30% 7.89% 7.91% 7.58%
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 March 31, 2000. Investment securities carried at approximately $126,057,000 and $124,368,000 at March 31, 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 three months ended March 31, 2000 and for the year ended December 31, 1999 (dollars in thousands):
MARCH 31, DECEMBER 31, 2000 1999 WEIGHTED WEIGHTED AVERAGE AVERAGE AMOUNT RATE AMOUNT RATE Demand deposits: Non-interest bearing . $ 61,269 -- $ 60,557 -- Interest bearing ..... 160,657 2.85% 147,753 2.58% Savings ................ 40,603 2.34% 40,875 2.31% Time deposits .......... 224,325 5.08% 225,451 5.09% Total average deposits 486,854 3.48% $474,636 3.42%
The following table sets forth the maturity of time deposits of $100,000 or more at March 31, 2000 and December 31, 1999 (in thousands): MARCH 31, December 31, 2000 1999 3 months or less ....... $20,624 $16,915 Over 3 through 6 months 11,225 11,708 Over 6 through 12 months 9,987 11,444 Over 12 months ......... 4,916 3,854 Total ................ $46,752 $43,921 OTHER BORROWINGS Other borrowings consist of securities sold under agreements to repurchase, Federal Home Loan Bank ("FHLB") advances, and federal funds purchased. Information relating to other borrowings as of March 31, 2000 and December 31, 1999 is presented below (in thousands): March 31, December 31, 2000 1999 Securities sold under agreements to repurchase.. $23,883 $32,308 Federal Home Loan Bank advances: Overnight .................................. 20,300 3,000 Fixed term - due after one year ............ 13,000 18,500 Federal funds purchased ...................... -- 1,175 Total ...................................... $57,183 $54,983 Average interest rate at end of period ..... 5.69% 4.86% Maximum Outstanding at Any Month-end Securities sold under agreements to repurchase $25,082 $32,308 Federal Home Loan Bank advances: Overnight .................................. 27,500 18,000 Fixed term - due after one year ............ 13,000 20,500 Federal funds purchased ...................... -- 1,175 Total ...................................... $65,582 $71,983 Averages for the Period Ended Securities sold under agreements to repurchase $23,928 $22,063 Federal Home Loan Bank advances: Overnight .................................. 13,680 1,486 Fixed term - due after one year ............ 11,159 17,116 Federal funds purchased ...................... 2,370 345 Total ...................................... $51,137 $41,010 Average interest rate during the period .... 5.35% 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 deposits by the State of Illinois. The fixed term advances consists primarily of the following: * $5 million advance with a 10-year maturity, a six month call option by the Federal Home Loan Bank and an interest rate of 5.20% * $3 million advance with a 5-year maturity, a six month call option by the Federal Home Loan Bank and an interest rate of 5.85% * $5 million advance with a 5-year maturity and an interest rate of 6.16% 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 March 31, 2000 (in thousands):
NUMBER OF MONTHS UNTIL NEXT REPRICING OPPORTUNITY INTEREST EARNING ASSETS: ............. 0-1 1-3 3-6 6-12 12+ Federal funds sold ................... $ 516 $ -- $ -- $ -- $ -- Taxable investment securities ........ 13,949 7,566 6,649 13,380 80,054 Nontaxable investment securities ..... -- 170 335 2,514 26,882 Loans ................................ 36,032 32,371 28,036 59,516 241,588 Total .............................. $ 50,497 $ 40,107 $ 35,020 $ 75,410 $ 348,524 INTEREST BEARING LIABILITIES: Savings and N.O.W. accounts .......... 150,836 -- -- -- -- Money market accounts ................ 53,079 -- -- -- -- Other time deposits .................. 22,730 35,560 55,515 49,932 52,503 Other borrowings ..................... 44,138 5,000 -- -- 8,045 Long-term debt ....................... 4,325 -- -- -- -- Total .............................. $ 275,108 $ 40,560 $ 55,515 $ 49,932 $ 60,548 Periodic GAP ....................... $(224,611) $ (543) $ (20,495) $ 25,478 $ 287,976 Cumulative GAP ..................... $(224,611) $(225,064) $(245,559) $(220,081) $ 67,895 GAP as a % of interest earning assets: Periodic ........................... (40.9%) (0.1%) (3.7%) 4.6% 52.4% Cumulative ......................... (40.9%) (41.0%) (44.7%) (40.0%) 12.4%
At March 31, 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 roll overs of assets and liabilities, of which First Mid Bank represents substantially all of the Company's rate sensitive assets and liabilities. CAPITAL RESOURCES At March 31, 2000, the Company's stockholders' equity increased $1,075,000 or 2.1% to $52,593,000 from $51,518,000 as of December 31, 1999. During the first three months of 2000, net income contributed $1,430,000 to equity before the payment of dividends to common stockholders. The change in net unrealized gain/loss on available-for-sale investment securities decreased stockholders' equity by $52,000, 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 March 31, 2000 and December 31, 1999 all capital adequacy requirements have been met by the Company and First Mid Bank. As of March 31, 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.
TO BE WELL CAPITALIZED UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO MARCH 31, 2000 Total Capital (to risk-weighted assets) Company ................. $45,941 12.15% $30,250 > 8.00 $37,813 > 10.00 First Mid Bank .......... 46,940 12.52 29,988 > 8.00 37,485 > 10.00 Tier 1 Capital (to risk-weighted assets) Company ................. 42,872 11.34 15,125 > 4.00 22,688 >6.00 First Mid Bank .......... 43,871 11.70 14,994 > 4.00 22,491 >6.00 Tier 1 Capital (to average assets) Company ................. 42,872 7.28 23,560 > 4.00 29,451 >5.00 First Mid Bank .......... 43,871 7.48 23,472 > 4.00 29,340 >5.00
TO BE WELL CAPITALIZED UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO DECEMBER 31, 1999 Total Capital (to risk-weighted assets) Company ................. $44,381 11.98% $29,648 > 8.00 $37,060 > 10.00 First Mid Bank .......... 45,409 12.40 29,305 > 8.00 36,631 > 10.00 Tier 1 Capital (to risk-weighted assets) Company ................. 41,442 11.18 14,824 > 4.00 22,236 >6.00 First Mid Bank .......... 42,470 11.59 14,652 > 4.00 21,979 >6.00 Tier 1 Capital (to average assets) Company ................. 41,442 6.96 24,347 > 4.00 30,434 >5.00 First Mid Bank .......... 42,470 7.19 23,630 > 4.00 29,538 >5.00
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 an additional 5%. The shares will be repurchased at the most recent market price of the stock. The Company repurchased 20,623 shares (.9%) at a total price of $677,000 during the quarter ended March 31, 2000 and 9,696 shares (.4%) at a total price of $337,000 for the year ended December 31, 1999. A total of 43,858 shares have been repurchased from the inception of this program to March 31, 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 March 31, 2000, the excess collateral at the Federal Home Loan Bank will support approximately $70 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 Statement of Financial Accounting Standards No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES," ("SFAS 133") was issued by the FASB in September 1998. 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 statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) 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. If certain conditions are met, entities may elect to designate a derivative instrument as a hedge of exposures to changes in fair values, cash flows, or foreign currencies. If the hedged exposure is a fair value exposure, the gain or loss on the derivative instrument is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributable to the risk being hedged. If the hedged exposure is a cash flow exposure, the effective portion of the gain or loss on the derivative instrument is reported initially as a component of other comprehensive income (outside earnings) and subsequently reclassified into earnings when the forecasted transaction affects earnings. Any amounts excluded from the assessment of hedge effectiveness as well as the ineffective portion of the gain or loss is reported in earnings immediately. Accounting for foreign currency hedges is similar to the accounting for fair value and cash flow hedges. If the derivative instrument is not designated as a hedge, the gain or loss is recognized in earnings in the period of change. During September, 1999, the FASB issued the Statement of Financial Accounting Standards No. 137, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - -- DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133 -- AN AMENDMENT OF FASB STATEMENT NO. 133," ("SFAS 137") that delays SFAS 133 until fiscal years beginning after June 15, 2000. Adoption of SFAS 133 is not expected to have a material impact on the Company's financial statements. 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 changes 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 as depositories of funds, it is named from time to time as a defendant in law suits (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 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 Two Form 8-K's were filed by the Company during the quarter ended March 31, 2000. One was filed on January 26, 2000, disclosing the report of 1999 earnings of the Company. The other was filed on January 21, 2000, disclosing the conversion of the Company's preferred stock into common stock. 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/ Laurel G. Allenbaugh -------------------------------------* Laurel G. Allenbaugh Vice President and Controller (Chief Accounting Officer) Dated: May 12, 2000 *---------------------* EXHIBIT INDEX TO FORM 10-Q EXHIBIT NUMBER DECRIPTION AND FILING OR INCORPORATION REFERENCE 11.1 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE (Filed herewith) 27.1 FINANCIAL DATA SCHEDULE (Filed herewith) EX-27 2 FDS --
9 1000 YEAR DEC-31-2000 MAR-31-2000 15994 131 516 0 148366 3132 3083 397542 3069 602565 483762 23883 4702 37625 0 0 9252 43341 602565 8165 2288 38 10491 4233 4992 5499 150 0 4896 2063 2063 0 0 1430 .63 .63 4.18 1610 1303 77 0 2939 32 12 3069 3069 0 0
-----END PRIVACY-ENHANCED MESSAGE-----