-----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, UotbFNxlQ5NMFz02lqiWf7LvWZuwm1TmQ1qId+YX50LjLSA2UNu3CcBEWvv1LXel quqM5J0lNM+sauhNkPv7Cg== /in/edgar/work/20000811/0000700565-00-000014/0000700565-00-000014.txt : 20000921 0000700565-00-000014.hdr.sgml : 20000921 ACCESSION NUMBER: 0000700565-00-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST MID ILLINOIS BANCSHARES INC CENTRAL INDEX KEY: 0000700565 STANDARD INDUSTRIAL CLASSIFICATION: [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: 695143 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 0001.txt 2ND QTR 10-Q FILING 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 JUNE 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 August 10, 2000 2,251,268 common shares, $4.00 par value, were outstanding. PART I ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (unaudited) JUNE 30, December 31, (In thousands, except share data) ................................... 2000 1999 ASSETS Cash and due from banks: Non-interest bearing .............................................. $ 18,966 $ 21,054 Interest bearing .................................................. -- 78 Federal funds sold .................................................. 95 710 Cash and cash equivalents ......................................... 19,061 21,842 Investment securities: Available-for-sale, at fair value ................................. 146,468 150,157 Held-to-maturity, at amortized cost (estimated fair value of $3,090 and $2,077 at June 30, 2000 and December 31, 1999, respectively) ............................ 3,132 2,132 Loans ............................................................... 410,166 388,319 Less allowance for loan losses ...................................... 3,133 2,939 Net loans ......................................................... 407,033 385,380 Premises and equipment, net ......................................... 15,735 16,153 Intangible assets, net .............................................. 12,739 13,340 Other assets ........................................................ 11,675 12,099 TOTAL ASSETS ...................................................... $ 615,843 $ 601,103 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing .............................................. $ 63,957 $ 60,555 Interest bearing .................................................. 425,734 424,456 Total deposits .................................................... 489,691 485,011 Federal funds purchased ............................................. -- 1,175 Securities sold under agreements to repurchase ...................... 26,121 32,308 Federal Home Loan Bank advances-short term .......................... 28,049 3,000 Federal Home Loan Bank advances-long term ........................... 10,300 18,500 Long-term debt ...................................................... 4,325 4,325 Other liabilities ................................................... 4,195 5,266 TOTAL LIABILITIES ................................................. 562,681 549,585 Stockholders' Equity: Common stock, $4 par value; authorized 6,000,000 shares; issued 2,323,119 shares in 2000 and 2,302,022 shares in 1999 .......................................... 9,292 9,208 Additional paid-in-capital .......................................... 12,232 11,608 Retained earnings ................................................... 37,151 34,835 Deferred compensation ............................................... 1,202 1,123 Accumulated other comprehensive loss ................................ (3,234) (3,265) Less treasury stock at cost, 69,080 shares in 2000 and 25,235 shares in 1999 ................................. (3,481) (1,991) TOTAL STOCKHOLDERS' EQUITY .......................................... 53,162 51,518 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................... $ 615,843 $ 601,103 See accompanying notes to unaudited consolidated financial statements
CONSOLIDATED STATEMENTS OF INCOME (unaudited) THREE MONTHS ENDED SIX MONTHS ENDED (In thousands, except per share data) JUNE 30, JUNE 30, 2000 1999 2000 1999 INTEREST INCOME: Interest and fees on loans ........................................... $ 8,493 $7,173 $16,658 $14,042 Interest on investment securities .................................... 2,282 2,184 4,570 4,238 Interest on federal funds sold ....................................... 26 137 63 192 Interest on deposits with other financial institutions ....................................... 3 47 4 49 Total interest income .............................................. 10,804 9,541 21,295 18,521 INTEREST EXPENSE: Interest on deposits ................................................. 4,377 3,895 8,610 7,595 Interest on securities sold under agreements to repurchase ...................................................... 311 174 600 388 Interest on Federal Home Loan Bank advances .......................... 636 253 995 498 Interest on Federal funds purchased .................................. 11 5 47 7 Interest on long-term debt ........................................... 83 66 158 136 Total interest expense ............................................. 5,418 4,393 10,410 8,624 Net interest income ................................................ 5,386 5,148 10,885 9,897 Provision for loan losses ............................................ 150 150 300 300 Net interest income after provision ................................ 5,236 4,998 10,585 9,597 OTHER INCOME: Trust revenues ....................................................... 448 464 961 945 Brokerage revenues ................................................... 138 109 275 229 Service charges ...................................................... 616 573 1,208 1,073 Mortgage banking income .............................................. 107 195 169 524 Other ................................................................ 307 346 613 684 Total other income ................................................. 1,616 1,687 3,226 3,455 OTHER EXPENSE: Salaries and employee benefits ....................................... 2,516 2,402 5,026 4,655 Net occupancy and equipment expense .................................. 905 852 1,783 1,621 Amortization of intangible assets .................................... 300 191 602 382 Stationery and supplies .............................................. 124 189 272 363 Legal and professional ............................................... 205 283 375 507 Marketing and promotion .............................................. 249 195 406 314 Other ................................................................ 753 676 1,484 1,314 Total other expense ................................................ 5,052 4,788 9,948 9,156 Income before income taxes ........................................... 1,800 1,897 3,863 3,896 Income taxes ......................................................... 305 598 938 1,241 Net income ......................................................... $ 1,495 $1,299 $ 2,925 $ 2,655 Per share data: Basic earnings per share ............................................. $ .66 $ .61 $ 1.29 $ 1.25 Diluted earnings per share ........................................... $ .66 $ .57 $ 1.29 $ 1.17 See accompanying notes to unaudited consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED June 30, (In thousands) 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net income ........................................................... $ 2,925 $ 2,655 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses .......................................... 300 300 Depreciation, amortization and accretion, net ...................... 1,485 1,119 (Gain) loss on sale of other real property owned, net .............. 59 (77) Gain on sale of mortgage loans held for sale, net .................. (129) (483) Origination of mortgage loans held for sale ........................ (7,494) (24,940) Proceeds from sale of mortgage loans held for sale ................. 7,113 32,717 (Increase) decrease in other assets ................................ 396 (1,543) Increase (decrease) in other liabilities ........................... (407) 1,592 Net cash provided by operating activities ............................ 4,248 11,340 CASH FLOWS FROM INVESTING ACTIVITIES: Capitalization of mortgage servicing rights .......................... (96) (30) Purchases of premises and equipment .................................. (523) (1,068) Net increase in loans ................................................ (21,443) (7,639) Proceeds from maturities of: Securities available-for-sale ...................................... 4,378 24,302 Securities held-to-maturity ........................................ -- 135 Purchases of: Securities available-for-sale ...................................... -- (26,758) Securities held-to-maturity ........................................ (1,516) (332) Purchase of financial organization, net of cash received ............. -- 46,441 Net cash provided by (used in) investing activities .................. (19,200) 35,051 CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in deposits .................................. 4,680 (20,771) Decrease in repurchase agreements .................................... (6,187) (4,553) Decrease in federal funds purchased .................................. (1,175) -- Increase in short-term borrowings .................................... 25,049 -- Repayment of long-term borrowings .................................... (8,200) (4,375) Proceeds from issuance of common stock ............................... 12 290 Purchase of treasury stock ........................................... (1,411) (159) Dividends paid on preferred stock .................................... -- (45) Dividends paid on common stock ....................................... (597) (515) Net cash provided by (used in) financing activities .................. 12,171 (30,128) Increase (decrease) in cash and cash equivalents ..................... (2,781) 16,263 Cash and cash equivalents at beginning of period ..................... 21,842 21,772 Cash and cash equivalents at end of period ........................... $ 19,061 $ 38,035 ADDITIONAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest ........................................................... $ 10,597 $ 8,747 Income taxes ....................................................... 1,430 1,524 Loans transferred to real estate owned ............................... 102 497 Dividends reinvested in common stock ................................. 695 651 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 June 30, 2000 and 1999, and all such adjustments are of a normal recurring nature. The results of the interim period ended June 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 six month periods ended June 30, 2000 and 1999 is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED June 30, June 30, (In thousands) 2000 1999 2000 1999 Net income ............................... $ 1,495 $ 1,299 $ 2,925 $ 2,655 Other comprehensive income(loss): Unrealized gain (loss) during the period 126 (2,498) 47 (3,345) Tax effect ............................. (43) 849 (16) 1,137 Comprehensive income ..................... $ 1,578 $ (350) $ 2,956 $ 447
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 in 1999 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 month and six month periods ended June 30, 2000 and 1999 are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED June 30, June 30, 2000 1999 2000 1999 BASIC EARNINGS PER SHARE: Net income ................................ $1,495,000 $1,299,000 $2,925,000 $2,655,000 Less preferred stock dividends ............. -- (71,000) -- (142,000) Net income available to common stockholders $1,495,000 $1,228,000 $2,925,000 $2,513,000 Weighted average common shares outstanding . 2,257,694 2,020,682 2,267,716 2,017,909 Basic Earnings per Common Share ............ $ .66 $ .61 $ 1.29 $ 1.25 DILUTED EARNINGS PER SHARE: Net income available to common stockholders $1,495,000 $1,228,000 $2,925,000 $2,513,000 Assumed conversion of preferred stock ...... -- 71,000 -- 142,000 Net income available to common stock- holders after assumed conversion ......... $1,495,000 $1,299,000 $2,925,000 $2,655,000 Weighted average common shares outstanding . 2,257,694 2,020,682 2,267,716 2,017,909 Assumed conversion of stock options ........ 700 8,501 2,472 7,902 Assumed conversion of preferred stock ...... -- 248,179 -- 250,604 Diluted weighted average common shares outstanding ....................... 2,258,394 2,277,362 2,270,187 2,276,416 Diluted Earnings per Common Share .......... $ .66 $ .57 $ 1.29 $ 1.17
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 June 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 June 30, 2000 was $1,495,000 ($.66 diluted EPS), an increase of $196,000 from $1,299,000 ($.57 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 six months ended June 30, 2000 was $2,925,000 ($1.29 diluted EPS), an increase of $270,000 from $2,655,000 ($1.17 diluted EPS) for the same period in 1999. A summary of the factors which contributed to the changes in net income for the six months is shown in the table below. 2000 VS 1999 (in thousands) THREE MONTHS SIX MONTHS Net interest income ........................... $ 238 $ 988 Other income, including securities transactions (71) (229) Other expenses ................................ (264) (792) Income taxes .................................. 293 303 Increase in net income ........................ $ 196 $ 270 The following table shows the Company's annualized performance ratios for the six months ended June 30, 2000 and 1999, as compared to the performance ratios for the year ended December 31, 1999: June 30, December 31, 2000 1999 1999 Return on average assets ....... .97% .97% .91% Return on average equity ....... 11.24% 10.34% 10.14% Return on average common equity 11.24% 10.41% 10.08% Average equity to average assets 8.63% 9.34% 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):
SIX MONTHS ENDED SIX MONTHS ENDED JUNE 30, 2000 JUNE 30, 1999 AVERAGE AVERAGE AVERAGE AVERAGE BALANCE INTEREST RATE BALANCE INTEREST RATE ASSETS Interest-bearing deposits $ 132 $ 4 6.09% $ 1,986 $ 49 4.93% Federal funds sold 2,166 63 5.81% 8,272 192 4.64% Investment securities Taxable 121,150 3,850 6.36% 123,949 3,569 5.76% Tax-exempt (1) 29,768 1,092 7.33% 29,033 1,013 6.98% Loans (2)(3) 396,614 16,658 8.40% 341,868 14,042 8.21% Total earning assets 549,830 21,667 7.88% 505,108 18,865 7.47% Cash and due from banks 16,388 15,577 Premises and equipment 16,020 13,872 Other assets 23,924 17,787 Allowance for loan losses (3,070) (2,811) Total assets $603,092 $549,533 LIABILITIES AND STOCKHOLDERS' EQUITY Interest-Bearing Deposits Demand deposits $160,459 $ 2,366 2.95% $132,046 $ 1,551 2.35% Savings deposits 40,490 473 2.33% 39,623 442 2.23% Time deposits 222,528 5,771 5.19% 219,548 5,602 5.10% Securities sold under agreements to repurchase 23,295 600 5.15% 19,641 388 3.95% FHLB advances 31,966 995 6.22% 19,788 498 5.04% Federal funds purchased 1,547 47 6.12% 282 7 4.98% Long-term debt 4,325 158 7.32% 4,509 136 6.02% Total interest-bearing liabilities 484,610 10,410 4.30% 435,437 8,624 3.96% Demand deposits 61,807 58,507 Other liabilities 4,638 4,258 Stockholders' equity 52,037 51,331 Total liabilities & equity $603,092 $549,533 Net interest income (TE) $11,256 $10,241 Net interest spread 3.58% 3.51% Impact of non-interest bearing funds .51% .55% Net yield on interest- earning assets (TE) 4.09% 4.06% (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 six months ended June 30, 2000 (in thousands) as compared to the same period in 1999:
FOR THE SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO 1999 INCREASE / (DECREASE) TOTAL RATE/ CHANGE VOLUME RATE VOLUME (4) EARNING ASSETS: Interest-bearing deposits .......... $ (45) $ (46) $ 12 $ (11) Federal funds sold ................. (129) (141) 48 (36) Investment securities: Taxable .......................... 281 (80) 369 (8) Tax-exempt (1) ................... 79 26 52 1 Loans (2)(3) ....................... 2,616 2,248 317 51 Total interest income ............ 2,802 2,007 798 (3) INTEREST-BEARING LIABILITIES: Interest-bearing deposits Demand deposits .................. 816 335 396 85 Savings deposits ................. 31 10 20 1 Time deposits .................... 169 77 91 1 Securities sold under agreements to repurchase ......... 212 72 118 22 FHLB advances ...................... 497 307 118 72 Federal funds purchased ............ 40 31 2 7 Long-term debt ..................... 22 (6) 29 (1) Total interest expense ........... 1,787 826 774 187 Net interest income ................ $ 1,015 $ 1,181 $ 24 $(190) (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 $1,015,000, or 9.9% to $11,256,000 for the six months ended June 30, 2000, from $10,241,000 for the same period in 1999. The increase in net interest income for the six months ended June 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 a slight increase in the deposit rates combined with a higher deposit base. For the six months ended June 30, 2000, average earning assets increased by $44,722,000, or 8.9%, and average interest- bearing liabilities increased $49,174,000, or 11.3%, compared with average balances for the six months ended June 30, 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 4.4% to 72.1% for the six months ended June 30, 2000 from 67.7% for the six months ended June 30, 1999 * average securities (as a percent of average earnings assets) decreased 2.8% to 27.5% for the six months ended June 30, 2000 from 30.3% for the six months ended June 30, 1999 * net interest margin, on a tax equivalent basis, increased to 4.09% for the six months ended June 30, 2000, from 4.06% for the six months ended June 30, 1999 PROVISION FOR LOAN LOSSES The provision for loan losses for the three months ended June 30, 2000 and 1999 was $150,000 and was $300,000 for the six months ended June 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 six months ended June 30, 2000 and 1999 (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED 2000 1999 $ CHANGE 2000 1999 $ CHANGE Trust .............. $ 448 $ 464 $(16) $ 961 $ 945 $ 16 Brokerage .......... 138 109 29 275 229 46 Service charges .... 616 573 43 1,208 1,073 135 Mortgage banking ... 107 195 (88) 169 524 (355) Other .............. 307 346 (39) 613 684 (71) Total other income $1,616 $1,687 $(71) $3,226 $3,455 $(229)
* Total non-interest income decreased to $3,226,000 for the six months ended June 30, 2000, compared to $3,455,000 for the same period in 1999. * Trust revenues increased $16,000 or 1.7% to $961,000 for the six months ended June 30, 2000, compared to $945,000 for the same period in 1999. Trust assets, reported at market value, were $318 million at June 30, 2000, $324 million at December 31, 1999 and $311 million at June 30, 1999. * Revenues from brokerage and annuity sales increased $46,000 or 20.1% for the six months ended June 30, 2000, compared with the same period in 1999, as a result of increased sales of annuities. * Fees from service charges increased $135,000 or 12.6% to $1,208,000 for the six months ended June 30, 2000, compared to $1,073,000 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 charges on deposit accounts. * Mortgage banking income decreased $355,000 or 67.8% to $169,000 for the six months ended June 30, 2000, compared to $524,000 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: * $7.0 million (representing 93 loans) for the six months ended June 30, 2000 * $32.2 million (representing 415 loans) for the six months ended June 30, 1999 * Other income decreased $71,000 or 10.4% to $613,000 for the six months ended June 30, 2000, compared to $684,000 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 six months ended June 30, 2000 and 1999 (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED 2000 1999 $ CHANGE 2000 1999 $ CHANGE Salaries and benefits ..... $2,516 $2,402 $ 114 $5,026 $4,655 $ 371 Occupancy and equipment ... 905 852 53 1,783 1,621 162 FDIC premiums ............. 25 27 (2) 51 54 (3) Amortization of intangibles 300 191 109 602 382 220 Stationery and supplies ... 124 189 (65) 272 363 (91) Legal and professional fees 205 283 (78) 375 507 (132) Marketing and promotion ... 249 195 54 406 314 92 Other operating expenses .. 728 649 79 1,433 1,260 173 Total other expense ..... $5,052 $4,788 $ 264 $9,948 $9,156 $ 792
* Total non-interest expense increased to $9,948,000 for the six months ended June 30, 2000, compared to $9,156,000 for the same period in 1999. * Salaries and employee benefits, the largest component of other expense, increased $371,000 or 8.0% to $5,026,000 for the six months ended June 30, 2000, compared to $4,655,000 for the same period in 1999. This increase can be explained by: * merit increases for continuing employees * Monticello, Taylorville and DeLand branch employees added to the Company in May, 1999 and Decatur branch employees added in April, 2000 There were 275 FTE employees at June 30, 2000. * Occupancy and equipment expense increased $162,000 or 10.0% to $1,783,000 for the six months ended June 30, 2000, compared to $1,621,000 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 $220,000 or 57.6% to $602,000 for the six months ended June 30, 2000, compared to $382,000 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 increased a net of $39,000 or 1.6% to $2,537,000 for the six months ended June 30, 2000, compared to $2,498,000 for the same period in 1999. INCOME TAXES Total income tax expense amounted to $938,000 for the six months ended June 30, 2000, compared to $1,241,000 for the same period in 1999. Effective tax rates were 24.3% and 31.9% for the periods ended June 30, 2000 and 1999. The Company donated property with a current market value in excess of the remaining book value to the local school district during the second quarter of 2000 which led to a lower effective tax rate in 2000. ANALYSIS OF BALANCE SHEETS LOANS The loan portfolio is the largest category of the Company's earning assets. The following table summarizes the composition of the loan portfolio as of June 30, 2000 and December 31, 1999 (in thousands): June 30, DECEMBER 31, 2000 1999 Real estate - mortgage $286,617 $273,293 Commercial, financial and agricultural ... 95,461 89,176 Installment .......... 27,025 24,501 Other ................ 1,063 1,349 Total loans ........ $410,166 $388,319 At June 30, 2000, the Company had loan concentrations in agricultural industries of $64.2 million, or 15.6%, 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 $1.9 million as of June 30, 2000. The following table presents the balance of loans outstanding as of June 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 ..................... $ 61,189 $186,240 $39,188 $286,617 Commercial, financial and agricultural ......................... 62,619 28,967 3,875 95,461 Installment ................................ 5,582 20,095 1,348 27,025 Other ...................................... 198 403 462 1,063 Total loans .............................. $129,588 $235,705 $44,873 $410,166 (1) Based on scheduled principal repayments (2) Includes demand loans, past due loans and overdrafts.
As of June 30, 2000, loans with maturities over one year consisted of $247,474,000 in fixed rate loans and $33,104,000 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 June 30, 2000 and December 31, 1999 (in thousands): June 30, December 31, 2000 1999 Nonaccrual loans ........... $1,166 $1,430 Loans past due ninety days or more and still accruing 504 366 Renegotiated loans which are performing in accordance with revised terms ....... 244 81 Total Nonperforming Loans .. $1,914 $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 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 June 30, 2000, the Company's loan portfolio included $64.2 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 six month period ended June 30, 2000 and 1999, are summarized as follows (dollars in thousands): June 30, 2000 1999 Average loans outstanding, net of unearned income ............ $396,614 $341,868 Allowance-beginning of period ....... $ 2,939 $ 2,715 Balance of acquired branches ........ -- 150 Charge-offs: Real estate-mortgage ................ 18 -- Commercial, financial & agricultural 55 170 Installment ......................... 54 40 Total charge-offs ................. 127 210 Recoveries: Real estate-mortgage ................ 1 1 Commercial, financial & agricultural 10 7 Installment ......................... 10 11 Total recoveries .................. 21 18 Net charge-offs ..................... 106 192 Provision for loan losses ........... 300 300 Allowance-end of period ............. $ 3,133 $ 2,973 Ratio of net charge-offs to average loans ..................... .03% .06% Ratio of allowance for loan losses to loans outstanding (less unearned interest at end of period) ........ .76% .83% Ratio of allowance for loan losses to nonperforming loans ............ 163.7% 109.6% The Company minimizes credit risk by adhering to sound underwriting and credit review policies. These policies are reviewed at least annually, and changes are approved by the board of directors. Senior management is actively involved in business development efforts and the maintenance and monitoring of credit underwriting and approval. The loan review system and controls are designed to identify, monitor and address asset quality problems in an accurate and timely manner. On a monthly basis, the board of directors reviews the status of problem loans. In addition to internal policies and controls, regulatory authorities periodically review asset quality and the overall adequacy of the allowance for loan losses. During the first six months of 2000, the Company had net charge-offs of $106,000, compared to $192,000 for the same period in 1999. At June 30, 2000, the allowance for loan losses amounted to $3,133,000, or .76% of total loans, and 163.7% of nonperforming loans. At June 30, 1999, the allowance was $2,973,000, or .83% of total loans, and 109.6% 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 June 30, 2000 and December 31, 1999 (in thousands):
JUNE 30, DECEMBER 31, 2000 1999 % OF % OF AMOUN TOTAL AMOUNT TOTAL U.S. Treasury securities and obligations of U.S. government corporations and agencies .... $ 90,983 59% $ 92,180 58% Obligations of states and political subdivisions ....... 30,713 20% 30,281 19% Mortgage-backed securities .... 30,087 19% 32,578 21% Other securities .............. 3,096 2% 2,579 2% Total securities .......... $154,879 100% $157,618 100%
At June 30, 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 June 30, 2000 and December 31, 1999 were as follows (in thousands):
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR June 30, 2000 COST GAINS LOSSES VALUE Available-for-sale: U.S. Treasury securities and obligations of U.S. Government corporations & agencies $ 90,983 $ -- $ (3,972) $ 87,011 Obligations of states and political subdivisions ............................. 27,581 71 (762) 26,890 Mortgage-backed securities ................ 30,087 41 (657) 29,471 Federal Home Loan Bank stock .............. 2,430 -- -- 2,430 Other securities .......................... 666 -- -- 666 Total available-for-sale ................. $151,747 $ 112 $ (5,391) $146,468 Held-to-maturity: Obligations of states and political subdivisions ............................. $ 3,132 $ 5 $ (47) $ 3,090 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 June 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.
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 .... $ 3,000 $ 71,502 $ 12,261 $ 4,220 $ 90,983 Obligations of state and political subdivisions ....... 1,717 2,848 12,285 10,731 27,581 Mortgage-backed securities ..... 251 1,532 1,367 26,937 30,087 Other securities ............... -- -- -- 3,096 3,096 Total Investments .............. $ 4,968 $ 75,882 $ 25,913 $ 44,984 $151,747 Weighted average yield ......... 5.67% 5.77% 5.53% 6.34% 5.91% Full tax-equivalent yield ...... 6.53% 5.84% 6.47% 6.84% 6.28% Held-to-maturity: Obligations of state and political subdivisions ....... $ 405 $ 1,251 $ 810 $ 666 $ 3,132 Weighted average yield ......... 5.08% 5.05% 5.44% 5.41% 5.23% Full tax-equivalent yield ...... 7.34% 7.29% 7.89% 7.90% 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 June 30, 2000. Investment securities carried at approximately $123,040,000 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 six months ended June 30, 2000 and for the year ended December 31, 1999 (dollars in thousands):
JUNE 30, DECEMBER 31, 2000 1999 WEIGHTED WEIGHTED AVERAGE AVERAGE AMOUNT RATE AMOUNT RATE Demand deposits: Non-interest bearing $ 61,807 - $ 60,557 - Interest bearing 160,459 2.95% 147,753 2.58% Savings 40,490 2.33% 40,875 2.31% Time deposits 222,528 5.19% 225,451 5.09% Total average deposits 485,284 3.55% $474,636 3.42%
The following table sets forth the maturity of time deposits of $100,000 or more at June 30, 2000 and December 31, 1999 (in thousands): JUNE 30, December 31, 2000 1999 3 months or less ....... $16,783 $16,915 Over 3 through 6 months 11,581 11,708 Over 6 through 12 months 10,181 11,444 Over 12 months ......... 6,247 3,854 Total ................ $44,792 $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 June 30, 2000 and December 31, 1999 is presented below (in thousands):
June 30, December 31, 2000 1999 Securities sold under agreements to repurchase $26,121 $32,308 Federal Home Loan Bank advances: Overnight .................................. 28,049 3,000 Fixed term - due after one year ............ 10,300 18,500 Federal funds purchased ...................... -- 1,175 Total ...................................... $64,470 $54,983 Average interest rate at end of period ..... 6.27% 4.86% Maximum Outstanding at Any Month-end Securities sold under agreements to repurchase $26,121 $32,308 Federal Home Loan Bank advances: Overnight .................................. 33,575 18,000 Fixed term - due after one year ............ 13,000 20,500 Federal funds purchased ...................... 1,000 1,175 Total ...................................... $73,696 $71,983 Averages for the Period Ended Securities sold under agreements to repurchase $23,295 $22,063 Federal Home Loan Bank advances: Overnight .................................. 21,147 1,486 Fixed term - due after one year ............ 10,819 17,116 Federal funds purchased ...................... 1,547 345 Total ...................................... $56,808 $41,010 Average interest rate during the period .... 5.78% 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 5- year maturity, no call option by the Federal Home Loan Bank for one year, first call 3/30/01, and an interest rate of 6.16% * $3 million advance with a 5- year maturity, a quarterly call option by the Federal Home Loan Bank and an interest rate of 5.85% * $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 June 30, 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 ................... $ 95 $ -- $ -- $ -- $ -- Taxable investment securities ........ 17,386 6,956 4,747 11,425 79,065 Nontaxable investment securities ..... -- 335 2,463 432 26,792 Loans ................................ 52,940 19,348 37,827 51,417 248,634 Total .............................. $ 70,421 $ 26,639 $ 45,037 $ 63,274 $ 354,491 INTEREST BEARING LIABILITIES: Savings and N.O.W. accounts .......... 146,851 -- -- -- -- Money market accounts ................ 50,636 -- -- -- -- Other time deposits .................. 25,467 38,724 56,135 52,139 55,791 Other borrowings ..................... 54,125 -- -- -- 10,345 Long-term debt ....................... 4,325 -- -- -- -- Total .............................. $ 281,404 $ 38,724 $ 56,135 $ 52,139 $ 66,136 Periodic GAP ....................... $(210,983) $ (12,085) $ (11,098) $ 11,135 $ 288,355 Cumulative GAP ..................... $(210,983) $(223,068) $(234,166) $(223,031) $ 65,324 GAP as a % of interest earning assets: Periodic ........................... (37.7%) (2.2%) (2.0%) 2.0% 51.5% Cumulative ......................... (37.7%) (39.8%) (41.8%) (39.8%) 11.7%
At June 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 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 June 30, 2000, the Company's stockholders' equity increased $1,644,000 or 3.2% to $53,162,000 from $51,518,000 as of December 31, 1999. During the first six months of 2000, net income contributed $2,925,000 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 $31,000, 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 June 30, 2000 and December 31, 1999 all capital adequacy requirements have been met by the Company and First Mid Bank. As of June 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.
TO BE WELL CAPITALIZED UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO JUNE 30, 2000 Total Capital (to risk-weighted assets) Company ................. $46,790 11.86% $31,549 > 8.00% $39,437 > 10.00% First Mid Bank .......... 47,963 12.28% 31,252 > 8.00% 39,064 > 10.00% Tier 1 Capital (to risk-weighted assets) Company ................. 43,657 11.07% 15,775 > 4.00% 23,662 > 6.00 First Mid Bank .......... 44,830 11.48% 15,626 > 4.00% 23,439 > 6.00 Tier 1 Capital (to average assets) Company ................. 43,657 7.29% 23,941 > 4.00% 29,926 > 5.00% First Mid Bank .......... 44,830 7.52% 23,842 > 4.00% 29,803 > 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 43,845 shares (1.9%) at a total price of $1,411,000 during the six months ended June 30, 2000 and 9,696 shares (.4%) at a total price of $337,000 for the year ended December 31, 1999. A total of 67,080 shares have been repurchased from the inception of this program to June 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 June 30, 2000, the excess collateral at the Federal Home Loan Bank will support approximately $61 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. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES, AN AMENDMENT OF FASB STATEMENT NO. 133. This statement focuses mainly on guidance related to specific issues that would ease implementation difficulties for a large number of entities. The Board amended SFAS 133 by expanding the normal purchases and normal sales exception, permitting an entity to hedge to a designated benchmark interest rate defined as either the Treasury Rate or the London Interbank Offered Rate swap rate, permitting entities to hedge recognized foreign-currency-denominated assets and liabilities for which a foreign currency transaction gain or loss is recognized in earnings and permitting certain internal derivatives to qualify for hedge accounting in the consolidated financial statements even though internal derivatives are offset on a net or aggregate basis, rather than individually, by third party derivative contracts. SFAS 133 continues to be effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS 138 is to be adopted concurrently with SFAS 133. Adoption of SFAS 138 is not expected to have a material impact on the Company's financial position, results of operation or liquidity. 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 The Annual Meeting of Stockholders was held on May 17, 2000. At the meeting, Richard Anthony Lumpkin and William S. Rowland were elected to serve as Class II directors with terms expiring in 2003. Continuing Class I directors (term expiring in 2002) are Kenneth R. Diepholz, Gary W. Melvin and Steven L. Grissom and continuing Class III directors (term expiring in 2001) are Charles A. Adams, Daniel E. Marvin, Jr., and Ray Anthony Sparks. There were 2,272,043 issued and outstanding shares of Common Stock at the time of the Annual Meeting. The voting at the meeting, on the items listed below, was as follows: Election of Directors For Withheld Richard Anthony Lumpkin 2,046,199 3,380 William S. Rowland 2,045,699 3,800 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 June 30, 2000. 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: August 11, 2000 *---------------------*
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)
EX-27 2 0002.txt FDS 6-30-00
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