-----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, WavuJ+NeVu8qbIlqpjzUhejbmcpYJGjAKqCy5A6azzz1OKFDbUss3S9KSUqrp/eS xFVTlO7tMLJlakbvRu6qag== 0000700565-05-000118.txt : 20050506 0000700565-05-000118.hdr.sgml : 20050506 20050505183339 ACCESSION NUMBER: 0000700565-05-000118 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050506 DATE AS OF CHANGE: 20050505 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: 1934 Act SEC FILE NUMBER: 000-13368 FILM NUMBER: 05805058 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 FORMER COMPANY: FORMER CONFORMED NAME: FIRST-MID ILLINOIS BANCSHARES INC DATE OF NAME CHANGE: 19920703 10-Q 1 form10q_mar05.txt 1ST QUARTER 2005 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005 Commission file number: 0-13368 FIRST MID-ILLINOIS BANCSHARES, INC. (Exact name of Registrant as specified in its charter) Delaware 37-1103704 (State of incorporation) (I.R.S. employer identification no.) 1515 Charleston Avenue, Mattoon, Illinois 61938 (Address and zip code of principal executive offices) (217) 234-7454 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) YES [X] NO [ ] As of May 4, 2005, 4,443,049 common shares, $4.00 par value, were outstanding. PART I ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets (unaudited) March 31, December 31, (In thousands, except share data) 2005 2004 ------------- ------------ Assets Cash and due from banks: Non-interest bearing $ 16,410 $ 19,119 Interest bearing 3,641 1,985 Federal funds sold 8,475 2,450 ------------- ------------ Cash and cash equivalents 28,526 23,554 Investment securities: Available-for-sale, at fair value 167,101 168,821 Held-to-maturity, at amortized cost (estimated fair value of $1,475 and $1,598 at March 31, 2005 and December 31, 2004, respectively) 1,432 1,552 Loans 593,297 597,849 Less allowance for loan losses (4,737) (4,621) ------------- ------------ Net loans 588,560 593,228 Premises and equipment, net 15,115 15,227 Accrued interest receivable 4,865 5,405 Goodwill, net 9,034 9,034 Intangible assets, net 3,204 3,346 Other assets 5,849 6,561 ------------- ------------ Total assets $823,686 $ 826,728 ============= ============ Liabilities and Stockholders' Equity Deposits: Non-interest bearing $ 84,738 $ 85,524 Interest bearing 552,897 564,716 ------------- ------------ Total deposits 637,635 650,240 Accrued interest payable 1,463 1,506 Securities sold under agreements to repurchase 65,715 59,835 Junior subordinated debentures 10,310 10,310 Other borrowings 34,700 29,900 Other liabilities 4,027 5,783 ------------- ------------ Total liabilities 753,850 757,574 ------------- ------------ Stockholders' equity: Common stock, $4 par value; authorized 18,000,000 shares; issued 5,604,073 shares in 2005 and 5,578,897 shares in 2004 22,416 22,316 Additional paid-in capital 18,522 17,845 Retained earnings 55,697 53,259 Deferred compensation 2,332 2,204 Accumulated other comprehensive income (361) 623 Less treasury stock at cost, 1,160,875 shares in 2005 and 1,121,546 shares in 2004 (28,770) (27,093) ------------- ------------ Total stockholders' equity 69,836 69,154 ------------- ------------ Total liabilities and stockholders' equity $823,686 $826,728 ============= ============ See accompanying notes to unaudited consolidated financial statements.
Consolidated Statements of Income (unaudited) (In thousands, except per share data) Three months ended March 31, 2005 2004 --------------- ------------ Interest income: Interest and fees on loans $ 8,782 $ 8,167 Interest on investment securities 1,563 1,515 Interest on federal funds sold 69 39 Interest on deposits with other financial institutions 10 6 --------------- ------------ Total interest income 10,424 9,727 Interest expense: Interest on deposits 2,515 2,138 Interest on securities sold under agreements to repurchase 283 72 Interest on subordinated debentures 140 37 Interest on other borrowings 411 440 --------------- ------------ Total interest expense 3,349 2,687 --------------- ------------ Net interest income 7,075 7,040 Provision for loan losses 187 187 --------------- ------------ Net interest income after provision for loan losses 6,888 6,853 Other income: Trust revenues 636 616 Brokerage commissions 97 110 Insurance commissions 511 430 Service charges 1,034 1,124 Securities gains, net 173 - Mortgage banking revenue 153 94 Other 572 524 --------------- ------------ Total other income 3,176 2,898 Other expense: Salaries and employee benefits 3,474 3,338 Net occupancy and equipment expense 1,036 1,073 Amortization of other intangible assets 142 175 Stationery and supplies 139 134 Legal and professional 386 276 Marketing and promotion 123 141 Other 1,006 1,031 --------------- ------------ Total other expense 6,306 6,168 --------------- ------------ Income before income taxes 3,758 3,583 Income taxes 1,323 1,194 --------------- ------------ Net income $ 2,435 $ 2,389 =============== ============ Per share data: Basic earnings per share $ 0.55 $ 0.52 Diluted earnings per share $ 0.54 $ 0.51 =============== ============
See accompanying notes to unaudited consolidated financial statements.
Consolidated Statements of Cash Flows (unaudited) Three months ended (In thousands) March 31, 2005 2004 ---------- ----------- Cash flows from operating activities: Net income $ 2,435 $ 2,389 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 187 187 Depreciation, amortization and accretion, net 384 718 Gain on sale of securities, net (173) - Loss on sale of other real property owned, net 67 10 Gain on sale of mortgage loans held for sale, net (183) (109) Origination of mortgage loans held for sale (12,145) (8,524) Proceeds from sale of mortgage loans held for sale 13,767 8,312 Decrease in other assets 1,612 2,140 Decrease in other liabilities (726) (596) ---------- ----------- Net cash provided by operating activities 5,225 4,527 ---------- ----------- Cash flows from investing activities: Capitalization of mortgage servicing rights - (1) Purchases of premises and equipment (254) (234) Net increase in loans 3,042 2,200 Proceeds from sales of other real property owned 289 17 Proceeds from sales of securities available-for-sale 19,667 - Proceeds from maturities of securities available-for-sale 18,067 29,397 Proceeds from maturities of securities held-to-maturity 120 110 Purchases of securities available-for-sale (37,258) (10,064) Purchases of securities held-to-maturity (73) - ---------- ----------- Net cash provided by investing activities 3,600 21,425 ---------- ----------- Cash flows from financing activities: Net (decrease) increase in deposits (12,605) 8,591 Increase (decrease) in repurchase agreements 5,880 (11,871) Proceeds from FHLB advances 8,000 - Repayment of FHLB advances (5,000) (5,000) Issuance of junior subordinated debentures - 10,000 Proceeds from short-term debt 2,000 4,675 Repayment of short-term debt (200) (9,200) Proceeds from issuance of common stock 353 337 Purchase of treasury stock (1,566) (8,376) Dividends paid on common stock (715) (550) ---------- ----------- Net cash used in financing activities (3,853) (11,394) ---------- ----------- Increase in cash and cash equivalents 4,972 14,558 Cash and cash equivalents at beginning of period 23,554 24,949 ---------- ----------- Cash and cash equivalents at end of period $28,526 $39,507 ========== =========== Supplemental disclosures of cash flow information Cash paid during the period for: Interest $ 3,392 $2,719 Income taxes 232 149 Supplemental disclosures of noncash investing and financing activities Loans transferred to real estate owned - 61 Dividends reinvested in common stock 355 705 Net tax benefit related to option and deferred compensation plans 87 36
Notes to Consolidated Financial Statements (unaudited) Basis of Accounting and Consolidation The unaudited consolidated financial statements include the accounts of First Mid-Illinois Bancshares, Inc. ("Company") and its wholly-owned subsidiaries: Mid-Illinois Data Services, Inc. ("MIDS"), The Checkley Agency, Inc. ("Checkley") and First Mid-Illinois Bank & Trust, N.A. ("First Mid Bank"). All significant intercompany balances and transactions have been eliminated in consolidation. The financial information reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods ended March 31, 2005 and 2004, and all such adjustments are of a normal recurring nature. Certain amounts in the prior year's consolidated financial statements have been reclassified to conform to the March 31, 2005 presentation and there was no impact on net income or stockholders' equity. The results of the interim period ended March 31, 2005 are not necessarily indicative of the results expected for the year ending December 31, 2005. The Company operates as a one-segment entity for financial reporting purposes. The unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and do not include all of the information required by U.S. generally accepted accounting principles for complete financial statements and related footnote disclosures. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2004 Annual Report on Form 10-K. Website The Company maintains a website at www.firstmid.com. All periodic and current reports of the Company and amendments to these reports filed with the Securities and Exchange Commission ("SEC") can be accessed, free of charge, through this website as soon as reasonably practicable after these materials are filed with the SEC. Stock Split On July 16, 2004, the Company effected a three-for-two stock split in the form of a 50% stock dividend for all shareholders of record as of July 6, 2004. Par value remained at $4 per share. All current and prior period share and per share amounts have been restated giving retroactive recognition to the stock split. Recent Accounting Pronouncements On December 16, 2003, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 03-3, "Accounting for Certain Loans or Debt Securities Acquired in a Transfer" ("SOP 03-3"). SOP 03-3 provides guidance on the accounting for differences between contractual and expected cash flows from the purchaser's initial investment in loans or debt securities acquired in a transfer, if those differences are attributable, at least in part, to credit quality. Among other things, SOP 03-3: (1) prohibits the recognition of the excess of contractual cash flows over expected cash flows as an adjustment of yield, loss accrual, or valuation allowance at the time of purchase; (2) requires that subsequent increases in expected cash flows be recognized prospectively through an adjustment of yield; and (3) requires the subsequent decreases in expected cash flows be recognized as an impairment. In addition, SOP 03-3 prohibits the creation or carrying over of a valuation allowance in the initial accounting of all loans within its scope that are acquired in a transfer. SOP 03-3 becomes effective for loans or debt securities acquired in fiscal years beginning after December 15, 2004. The adoption of the requirements of SOP 03-3 did not have any impact on the Company's financial position or results of operations. In March 2004, the FASB reached a consensus on Emerging Issues Task Force Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments" ("EITF 03-1"). EITF 03-1 provides guidance for determining when an investment is impaired and whether the impairment is other than temporary. EITF 03-01 also incorporates into its consensus the required disclosures about unrealized losses on investments announced by the EITF in late 2003 and adds new disclosure requirements relating to cost-method investments. The new disclosure requirements are effective for annual reporting periods ending June 15, 2004 and the new impairment accounting guidance was to become effective for reporting periods beginning June 15, 2004. In September 2004, the FASB delayed the effective date of EITF 03-1 for measurement and recognition of impairment losses until implementation guidance is issued. The Company does not expect the adoption of impairment guidance contained in EITF 03-1 to have a material impact on its financial position or results of operations. In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, "Accounting for Nonmonetary Assets" ("SFAS 153"). SFAS 153 amends the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged and more broadly provides for exceptions regarding exchanges of nonmonetary assets that do not have commercial substance. The provisions of this Statement are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not expect the requirements of SFAS 153 to have a material impact on its financial position or results of operations. In December 2004, the FASB issued SFAS No. 123 (revised), "Accounting for Stock-Based Compensation" ("SFAS 123R"). SFAS 123R establishes accounting requirements for share-based compensation to employees and carries forward prior guidance on accounting for awards to non-employees. SFAS 123R requires an entity to recognize compensation expense based on an estimate of the number of awards expected to actually vest, exclusive of awards expected to be forfeited. The provisions of SFAS 123R will become effective January 1, 2006 for all equity awards granted after the effective date, as well as the unvested portion of all existing awards. The Company is evaluating the impact of SFAS 123R on its financial position and results of operations. In May 2004, the FASB issued FASB Staff Position on Financial Accounting Standard 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003" ("FSP FAS 106-2"). FSP FAS 106-2 provides guidance on the accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("the Act"); the Act was signed in law on December 8, 2003. Under the Act, a subsidy is available to sponsors of postretirement health care plans whose benefits are actuarially equivalent to Medicare Part D. The requirements of FSP FAS 106-2 did not have any impact on the Company's financial position or results of operations. Comprehensive Income The Company's comprehensive income for the three-months ended March 31, 2005 and 2004 was as follows (in thousands): Three months ended March 31, ------------------------- 2005 2004 ------------ ------------ Net income $2,435 $2,389 ------------ ------------ Other comprehensive income: Unrealized gain (loss) during the period (1,441) 779 Less realized gain during the period (173) - Tax effect 630 (302) ------------ ------------ Comprehensive income $1,451 $2,866 ============ ============ Earnings Per Share A three-for-two common stock split was effected on July 16, 2004, in the form of a 50% stock dividend for the stockholders of record at the close of business on July 6, 2004. Accordingly, information with respect to shares of common stock and earnings per share has been restated for current and prior periods presented to fully reflect the stock split. Basic earnings per share ("EPS") is calculated as net income divided by the weighted average number of common shares outstanding. Diluted EPS is computed using the weighted average number of common shares outstanding, increased by the assumed conversion of the Company's stock options, unless anti-dilutive. The components of basic and diluted earnings per common share for the three-months ended March 31, 2005 and 2004 were as follows: Three months ended March 31, ------------------------ 2005 2004 ------------ ----------- Basic Earnings per Share: Net income $2,435,000 $2,389,000 Weighted average common shares outstanding 4,450,359 4,594,637 ============ =========== Basic earnings per common share $ .55 $ .52 ============ =========== Diluted Earnings per Share: Weighted average common shares outstanding 4,450,359 4,594,637 Assumed conversion of stock options 93,116 81,396 ------------ ----------- Diluted weighted average common shares outstanding 4,543,475 4,676,033 ============ =========== Diluted earnings per common share $ .54 $ .51 ============ =========== Goodwill and Intangible Assets The Company has goodwill from business combinations, intangible assets from branch acquisitions, identifiable intangible assets assigned to core deposit relationships and customer lists of Checkley, and intangible assets arising from the rights to service mortgage loans for others. The following table presents gross carrying value and accumulated amortization by major intangible asset class as of March 31, 2005 and December 31, 2004 (in thousands):
March 31, 2005 December 31, 2004 ------------------------------ ----------------------------- Gross Gross Carrying Accumulated Carrying Accumulated Value Amortization Value Amortization ------------- ---------------- -------------- -------------- Goodwill not subject to amortization (effective 1/1/02) $12,794 $3,760 $12,794 $3,760 Intangibles from branch acquisition 3,015 1,609 3,015 1,559 Core deposit intangibles 2,805 2,320 2,805 2,279 Mortgage servicing rights 608 596 608 593 Customer list intangibles 1,904 603 1,904 555 ------------- ---------------- -------------- -------------- $21,126 $8,888 $21,126 $8,746 ============= ================ ============== ==============
Total amortization expense for the three-months ended March 31, 2005 and 2004 was as follows (in thousands): March 31, 2005 2004 -------------- ------------- Intangibles from branch acquisition $ 50 $ 50 Core deposit intangibles 40 69 Mortgage servicing rights 4 8 Customer list intangibles 48 48 -------------- ------------- $142 $175 ============== ============= Aggregate amortization expense for the current year and estimated amortization expense for each of the five succeeding years is shown in the table below (in thousands): Aggregate amortization expense: For period ended 3/31/05 $142 Estimated amortization expense: For period 04/1/05-12/31/05 $426 For year ended 12/31/06 $579 For year ended 12/31/07 $515 For year ended 12/31/08 $454 For year ended 12/31/09 $417 For year ended 12/31/10 $391 In accordance with the provisions of SFAS 142, the Company performed testing of goodwill for impairment as of September 30, 2004, and determined that, as of that date, goodwill was not impaired. Management also concluded that the remaining amounts and amortization periods were appropriate for all intangible assets. Stock Incentive Plan The Company accounts for its Stock Incentive Plan in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting For Stock Issued to Employees," and related interpretations. Accordingly, as the intrinsic value was zero, compensation cost based on fair value at grant date has not been recognized for stock options in the consolidated financial statements. As required by SFAS 123, "Accounting for Stock-Based Compensation" as amended by SFAS 148, "Accounting for Stock-Based Compensation--Transition and Disclosure," the Company provides pro forma net income and pro forma earnings per share disclosures for employee stock option grants. The following table illustrates the effect on net income if the fair value based method had been applied (in thousands, except per share data). Three months ended March 31, 2005 2004 ------------ ------------ Net income, as reported $2,435 $2,389 Stock based compensation expense determined under fair value based method, net of related tax effect (93) (65) ------------ ------------ Pro forma net income $2,342 $2,324 ============ ============ Basic Earnings Per Share: As reported $.55 $.52 Pro forma .53 .51 Diluted Earnings Per Share: As reported $.54 $.51 Pro forma .52 .50 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is intended to provide a better understanding of the consolidated financial condition and results of operations of the Company and its subsidiaries as of, and for the periods ended, March 31, 2005 and 2004. This discussion and analysis should be read in conjunction with the consolidated financial statements, related notes and selected financial data appearing elsewhere in this report. Forward-Looking Statements This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, such as discussions of the Company's pricing and fee trends, credit quality and outlook, liquidity, new business results, expansion plans, anticipated expenses and planned schedules. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are identified by use of the words "believe", "expect", "intend", "anticipate", "estimate", "project", or similar expressions. Actual results could differ materially from the results indicated by these statements because the realization of those results is subject to many uncertainties including: changes in interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area and accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included in the Company's filings with the Securities and Exchange Commission. Overview This overview of management's discussion and analysis highlights selected information in this document and may not contain all of the information that is important to you. For a more complete understanding of trends, events, commitments, uncertainties, liquidity, capital resources, and critical accounting estimates, you should carefully read this entire document. These have an impact on the Company's financial condition and results of operations. Net income was $2,435,000 and $2,389,000 and diluted earnings per share was $.54 and $.51 for the three months ended March 31, 2005 and 2004, respectively. The increase in net income was primarily the result of higher net interest income and greater non-interest income during the first quarter of 2005 than the first quarter of 2004. The increase in earnings per share was the result of improved net income and a decrease in the number of shares outstanding due to share repurchases made through our stock buy-back program. During the first three months of 2005, the Company acquired 39,329 shares at a total investment of $1,566,000. The following table shows the Company's annualized performance ratios for the three months ended March 31, 2005 and 2004, compared to the performance ratios for the year ended December 31, 2004: Three months ended Year ended March 31, March 31, December 31, 2005 2004 2004 ------------ ------------ ------------- Return on average assets 1.18% 1.21% 1.20% Return on average equity 13.93% 13.96% 14.24% Average equity to average assets 8.47% 8.64% 8.44% Total assets at March 31, 2005 and December 31, 2004 were $823.7 million and $826.7 million, respectively. The decrease in net assets was primarily the result of a decrease in loan portfolio balances. Net loan balances were $588.6 million at March 31, 2005, a decrease of $4.6 million, or .8%, from $593.2 million at December 31, 2004, primarily due to seasonal paydowns in the agricultural operating loan portfolio. Total deposit balances decreased to $637.6 million at March 31, 2005 from $650.2 million at December 31, 2004 primarily due to brokered certificates of deposit that matured during the first quarter of 2005 and were not immediately replaced and a decline in public fund time deposits. Net interest margin, defined as net interest income divided by average interest-earning assets, was 3.71% for the three months ended March 31, 2005, down from 3.88% for the same period in 2004. The decrease in the net interest margin is attributable to a greater increase in borrowing and deposit rates compared to the increase in interest-bearing liability rates. Net interest income before the provision for loan losses was $7.1 million for the three months ended March 31, 2005 compared to $7.0 million for the same period in 2004. Noninterest income increased $278,000, or 9.6%, to $3.2 million for the three months ended March 31, 2005 compared to $2.9 million in 2004. The primary reason for this increase was $173,000 in gains on the sale of securities during the first three months of 2005 as market conditions and investment portfolio liquidity were conducive to the sale. There were no securities sold during the first quarter of 2004. Noninterest expense increased 2.2% or $138,000, to $6.3 million for the three months ended March 31, 2005 compared to $6.2 million in 2004. The primary factor in the expense increase was increased salaries and benefits expense that resulted from additional employees for a new branch location in Highland, and increases in accounting and legal professional fees incurred in implementing the requirements of the Sarbanes-Oxley Act of 2002. Following is a summary of the factors that contributed to the changes in net income (in thousands): 2005 versus 2004 -------------------- Net interest income $35 Provision for loan losses - Other income, including securities transactions 278 Other expenses (138) Income taxes (129) Increase in net income $46 Credit quality is an area of importance to the Company. Total nonperforming loans were $3.7 million at March 31, 2005, compared to $3.3 million at March 31, 2004 and $3.1 million at December 31, 2004. The increase was primarily attributable to the addition of a commercial real estate loan. The Company's provision for loan loss for the three months ended March 31, 2005 and 2004 was $187,000. At March 31, 2005, the composition of the loan portfolio remained similar to the same period last year. Net charge-offs were 0.05% of average loans compared to .08% in 2004. Loans secured by both commercial and residential real estate comprised 73% of the loan portfolio as of March 31, 2005 and 2004. The Company's capital position remains strong and the Company has consistently maintained regulatory capital ratios above the "well-capitalized" standards. The Company's Tier 1 capital to risk weighted assets ratio calculated under the regulatory risk-based capital requirements at March 31, 2005 and 2004 was 11.35% and 10.85%, respectively. The Company's total capital to risk weighted assets ratio calculated under the regulatory risk-based capital requirements at March 31, 2005 and 2004 was 12.15% and 11.65%, respectively. The Company's liquidity position remains sufficient to fund operations and meet the requirements of borrowers, depositors, and creditors. The Company maintains various sources of liquidity to fund its cash needs. See discussion under the heading "Liquidity" for a full listing of sources and anticipated significant contractual obligations. The Company enters into financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include lines of credit, letters of credit and other commitments to extend credit. The total outstanding commitments at March 31, 2005 and 2004 were $111.9 million and $100.2 million, respectively. Critical Accounting Policies The Company has established various accounting policies that govern the application of U.S. generally accepted accounting principles in the preparation of the Company's financial statements. The significant accounting policies of the Company are described in the footnotes to the consolidated financial statements included in the Company's 2004 Annual Report on Form 10-K. Certain accounting policies involve significant judgments and assumptions by management that have a material impact on the carrying value of certain assets and liabilities; management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and assumptions, which could have a material impact on the carrying values of assets and liabilities and the results of operations of the Company. The Company believes the allowance for loan losses is the critical accounting policy that requires the most significant judgments and assumptions used in the preparation of its consolidated financial statements. In estimating the allowance for loan losses, management utilizes historical experience, as well as other factors, including the effect of changes in the local real estate market on collateral values, the effect on the loan portfolio of current economic indicators and their probable impact on borrowers, and increases or decreases in nonperforming and impaired loans. Changes in these factors may cause management's estimate of the allowance for loan losses to increase or decrease and result in adjustments to the Company's provision for loan losses. See heading "Loan Quality and Allowance for Loan Losses" for a more detailed description of the Company's estimation process and methodology related to the allowance for loan losses. Results of Operations Net Interest Income The largest source of revenue for the Company is net interest income. Net interest income represents the difference between total interest income earned on earning assets and total interest expense paid on interest-bearing liabilities. The amount of interest income is dependent upon many factors, including the volume and mix of earning assets, the general level of interest rates and the dynamics of changes in interest rates. The cost of funds necessary to support earning assets varies with the volume and mix of interest-bearing liabilities and the rates paid to attract and retain such funds. The Company's average balances, interest income and expense and rates earned or paid for major balance sheet categories are set forth in the following table (dollars in thousands):
Three months ended Three months ended March 31, 2005 March 31, 2004 ------------------------------------------------------------------------ Average Average Average Average Balance Interest Rate Balance Interest Rate ------------------------------------------------------------------------ ASSETS Interest-bearing deposits $1,644 $ 10 2.47% $2,813 $ 6 0.87% Federal funds sold 12,391 69 2.26% 18,070 39 0.88% Investment securities Taxable 147,942 1,380 3.73% 141,300 1,207 3.42% Tax-exempt 22,200 183 3.30% 27,741 308 4.44% Loans (1) 589,492 8,782 6.04% 547,729 8,167 6.06% ------------------------------------------------------------------------ Total earning assets 773,669 10,424 5.46% 737,653 9,727 5.36% ------------------------------------------------------------------------ Cash and due from banks 18,701 19,114 Premises and equipment 15,150 15,946 Other assets 22,688 23,996 Allowance for loan losses (4,697) (4,495) ------------ --------------- Total assets $825,511 $792,214 ============ =============== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits Demand deposits $231,657 $ 554 .97% $220,957 $ 341 .63% Savings deposits 60,359 58 .39% 59,757 56 .38% Time deposits 268,847 1,903 2.87% 251,022 1,741 2.82% Securities sold under agreements to repurchase 61,665 283 1.86% 55,345 72 .53% FHLB advances 25,667 355 5.61% 28,597 387 5.50% Federal funds purchased - - - 35 - - Junior subordinated debt 10,310 140 5.51% 3,852 37 3.91% Other debt 5,867 56 3.87% 8,795 53 2.45% ------------------------------------------------------------------------ Total interest-bearing liabilities 664,372 3,349 2.04% 628,360 2,687 1.74% ------------------------------------------------------------------------ Non interest-bearing demand deposits 86,390 89,243 Other liabilities 4,835 6,141 Stockholders' equity 69,914 68,470 ------------ --------------- Total liabilities & equity $825,511 $792,214 ============ =============== Net interest income $ 7,075 $ 7,040 ============ =========== Net interest spread 3.42% 3.62% Impact of non-interest bearing funds .29% .26% Net yield on interest- earning assets 3.71% 3.88% ============ ============
(1) Nonaccrual loans are not material and have been included in the average balances. Changes in net interest income may also be analyzed by segregating the volume and rate components of interest income and interest expense. The following table summarizes the approximate relative contribution of changes in average volume and interest rates to changes in net interest income for the three months ended March 31, 2005, compared to the same period in 2004 (in thousands):
For the three months ended March 31, 2005 compared to 2004 Increase / (Decrease) Total Change Volume (1) Rate (1) ------------------------------------------- Earning Assets: Interest-bearing deposits $ 4 $ (1) $ 5 Federal funds sold 30 (8) 38 Investment securities: Taxable 173 59 114 Tax-exempt (125) (55) (70) Loans (2) 615 643 (28) ------------------------------------------- Total interest income 697 638 59 ------------------------------------------- Interest-Bearing Liabilities: Interest-bearing deposits Demand deposits 213 17 196 Savings deposits 2 1 1 Time deposits 162 130 32 Securities sold under agreements to repurchase 211 9 202 FHLB advances (32) (40) 8 Federal funds purchased - - - Junior subordinated debt 103 83 20 Other debt 3 (4) 7 ------------------------------------------- Total interest expense 662 196 466 ------------------------------------------- Net interest income $ 35 $442 $ (407) ===========================================
(1) Changes attributable to the combined impact of volume and rate have been allocated proportionately to the change due to volume and the change due to rate. (2) Nonaccrual loans are not material and have been included in the average balances. Net interest income increased $35,000, or .5% to $7,075,000 for the three months ended March 31, 2005, from $7,040,000 for the same period in 2004. The increase in net interest income was due to growth in earning assets primarily composed of loan growth that was largely offset by an increase in the cost of interest-bearing liabilities as the cost of floating-rate debt increased. For the three months ended March 31, 2005, average-earning assets increased by $36.0 million, or 4.9%, and average interest-bearing liabilities increased $36.0 million, or 5.7%, compared with average balances for the same period in 2004. Changes in average balances are shown below: * Average loans increased by $41.8 million or 7.6% in 2005 compared to 2004. * Average securities increased by $1.1 million or .7% in 2005 compared to 2004. * Average interest-bearing deposits increased by $29.1 million or 5.5% in 2005 compared to 2004. * Average securities sold under agreements to repurchase increased by $6.3 million or 11.4% in 2005 compared to 2004. * Average borrowings and other debt decreased by $5.9 million or 15.8% in 2005 compared to 2004. * Net interest margin decreased to 3.71% in 2005 from 3.88% in 2004. To compare the tax-exempt yields on interest-earning assets to taxable yields, the Company also computes non-GAAP net interest income on a tax equivalent basis (TE) where the interest earned on tax-exempt securities is adjusted to an amount comparable to interest subject to normal income taxes assuming a federal tax rate of 34% (referred to as the tax equivalent adjustment). The net yield on interest-earning assets (TE) was 3.76% in 2005 and 3.93% in 2004. The TE adjustments to net interest income for March 31, 2005 and 2004 were $94,000 and $160,000, respectively. Provision for Loan Losses The provision for loan losses for the three months ended March 31, 2005 and 2004 was $187,000. Nonperforming loans increased from $3,271,000 as of March 31, 2004 to $3,726,000 as of March 31, 2005. Net charge-offs were $71,000 for the three months ended March 31, 2005 compared to $113,000 during the same period in 2004. For information on loan loss experience and nonperforming loans, see discussion under the "Nonperforming Loans" and "Loan Quality and Allowance for Loan Losses" sections below. Other Income An important source of the Company's revenue is derived from other income. The following table sets forth the major components of other income for the three-months ended March 31, 2005 and 2004 (in thousands): Three months ended March 31, 2005 2004 $ Change ------------- ------------- ------------- Trust $636 $616 $ 20 Brokerage 97 110 (13) Insurance commissions 511 430 81 Service charges 1,034 1,124 (90) Security gains 173 - 173 Mortgage banking 153 94 59 Other 572 524 48 ------------- ------------- ------------- Total other income $3,176 $2,898 $ 278 ============= ============= ============= Following are explanations for the three months ended March 31, 2005 compared to the same period in 2004: * Trust revenues increased $20,000 or 3.2% to $636,000 from $616,000. Trust assets, at market value, were $384 million at March 31, 2005 compared to $361 million at March 31, 2004. The increase in trust revenues was the result of new business and an increase in equity prices. * Revenues from brokerage decreased $13,000 or 11.8% to $97,000 from $110,000 as a result of a decrease in the number of stock transactions. * Insurance commissions increased $81,000 or 18.8% to $511,000 from $430,000 due to an increase in commissions received on sales of business property and casualty insurance and the timing of contingency fees received in the first quarter of 2005. * Fees from service charges decreased $90,000 or 8.0% to $1,034,000 from $1,124,000. This was primarily the result of decreases in overdraft fees due to a decline in the number of overdraft items. * Mortgage banking income increased $59,000 or 62.8% to $153,000 from $94,000. This increase was due to the increased volume of fixed rate loans originated and sold by First Mid Bank. Loans sold balances are as follows: * $13.6 million (representing 129 loans) for the 1st quarter of 2005. * $3.1 million (representing 33 loans) for the 1st quarter of 2004. First Mid Bank generally releases the servicing rights on loans sold into the secondary market. * Other income increased $48,000 or 9.2% to $572,000 from $524,000. This increase was primarily due to increased ATM and bankcard service fees and increased check printing income. Other Expense The major categories of other expense include salaries and employee benefits, occupancy and equipment expenses and other operating expenses associated with day-to-day operations. The following table sets forth the major components of other expense for the three-months ended March 31, 2005 and 2004 (in thousands): Three months ended March 31, 2005 2004 $ Change ------------ ------------- ------------- Salaries and benefits $ 3,474 $ 3,338 $136 Occupancy and equipment 1,036 1,073 (37) Amortization of intangibles 142 175 (33) Stationery and supplies 139 134 5 Legal and professional fees 386 276 110 Marketing and promotion 123 141 (18) Other operating expenses 1,006 1,031 (25) ------------ ------------- ------------- Total other expense $ 6,306 $ 6,168 $ 138 ============ ============= ============= Following are explanations for the three months ended March 31, 2005 compared to the same period in 2004: * Salaries and employee benefits, the largest component of other expense, increased $136,000 or 4.1% to $3,474,000 from $3,338,000. This increase is primarily due to merit increases for continuing employees and additional employees hired due to the addition of a branch in Highland. There were 318 full-time equivalent employees at March 31, 2005 compared to 311 at March 31, 2004. * Occupancy and equipment expense decreased $37,000 or 3.4% to $1,036,000 from $1,073,000 due to a decrease in depreciation expense for computer equipment fully depreciated in 2004. * Expense for amortization of intangible assets decreased $33,000 or 18.9% to $142,000 from $175,000 due to an intangible asset that was fully amortized in 2004. * Other operating expenses decreased $25,000 or 2.4% to $1,006,000 in 2005 from $1,031,000 in 2004. * All other categories of operating expenses increased a net of $97,000 or 17.6% to $648,000 from $551,000. The increase was primarily due to increased professional fees resulting from the provisions of the Sarbanes-Oxley Act of 2002 and a consulting fee paid for negotiation of our check printing contract. Income Taxes Total income tax expense amounted to $1,323,000 (35.2% effective tax rate) for the three months ended March 31, 2005, compared to $1,194,000 (33.3% effective tax rate) for the same period in 2004. The change in the effective tax rate in 2005 is due to a reduction in the tax expense accrual in 2004 to more accurately reflect the estimated tax liability and deferred tax position. There was no similar reduction made in 2005. Analysis of Balance Sheets Loans The loan portfolio (net of unearned interest) is the largest category of the Company's earning assets. The following table summarizes the composition of the loan portfolio as of March 31, 2005 and December 31, 2004 (in thousands): March 31, December 31, 2005 2004 ---------------------------------- Real estate - residential $120,546 $121,567 Real estate - agricultural 49,880 50,215 Real estate - commercial 259,716 255,372 ---------------------------------- Total real estate - mortgage $430,142 $427,154 Commercial and agricultural 130,012 137,733 Installment 30,923 30,587 Other 2,220 2,375 ---------------------------------- Total loans $593,297 $597,849 ================================== Overall loans decreased $4.6 million, or .8% as a result of seasonal declines in agricultural operating loans. Total real estate mortgage loans have averaged approximately 70% of the Company's total loan portfolio for the past several years. This is the result of the Company's focus on commercial real estate lending and long-term commitment to residential real estate lending. The balance of real estate loans held for sale amounted to $1,250,000 and $2,689,000 as of March 31, 2005 and December 31, 2004, respectively. At March 31, 2005, the Company had loan concentrations in agricultural industries of $85.5 million, or 14.4%, of outstanding loans and $91.5 million, or 15.3%, at December 31, 2004. In addition, the Company had loan concentrations in the following industries as of March 31, 2005 compared to December 31, 2004 (dollars in thousands):
March 31, 2005 December 31, 2004 Principal % Outstanding Principal % Outstanding balance loans Balance loans ---------------- --------------- ----------------- --------------- Operators of non-residential $23,949 4.04% $18,864 3.16% buildings Apartment building owners 32,247 5.44% 23,111 3.87% Motels, hotels & tourist courts 28,616 4.82% 25,756 4.31%
The Company had no further loan concentrations in excess of 25% of Tier 1 risk-based capital. The following table presents the balance of loans outstanding as of March 31, 2005, by maturities (in thousands):
Maturity (1) ------------------------------------------------------------- Over 1 One year through Over or less (2) 5 years 5 years Total ------------------------------------------------------------- Real estate - residential $ 57,244 $ 59,300 $4,002 $120,546 Real estate - agricultural 9,406 34,379 6,095 49,880 Real estate - commercial 62,632 167,012 30,072 259,716 ------------------------------------------------------------- Total real estate - mortgage $129,282 $260,691 $ 40,169 $430,142 Commercial and agricultural 89,632 37,714 2,666 130,012 Installment 15,482 15,406 35 30,923 Other 931 1,006 283 2,220 ------------------------------------------------------------- Total loans $235,327 $314,817 $ 43,153 $593,297 =============================================================
(1) Based on scheduled principal repayments. (2) Includes demand loans, past due loans and overdrafts. As of March 31, 2005, loans with maturities over one year consisted of approximately $256.3 million fixed rate loans and $101.7 million in variable rate loans. The loan maturities noted above are based on the contractual provisions of the individual loans. Rollovers and borrower requests are handled on a case-by-case basis. Nonperforming Loans Nonperforming loans are defined as: (a) loans accounted for on a nonaccrual basis; (b) accruing loans contractually past due ninety days or more as to interest or principal payments; and (c) loans not included in (a) and (b) above which are defined as "renegotiated loans". The Company's policy is to cease accrual of interest on all loans that become ninety days past due as to principal or interest. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. The following table presents information concerning the aggregate amount of nonperforming loans at March 31, 2005 and December 31, 2004 (in thousands): March 31, December 31, 2005 2004 --------------------------------- Nonaccrual loans $3,726 $3,106 Renegotiated loans which are performing in accordance with revised terms - - --------------------------------- Total nonperforming loans $3,726 $3,106 ================================= The $620,000 increase in nonaccrual loans during the three months ended March 31, 2005 resulted from the net of $659,000 of loans put on nonaccrual status, $23,000 of loans brought current or paid-off and $16,000 of loans charged-off. Interest income that would have been reported if nonaccrual and renegotiated loans had been performing totaled $34,000 and $53,000 for the three months ended March 31, 2005 and 2004, respectively. Loan Quality and Allowance for Loan Losses The allowance for loan losses represents management's best estimate of the probable losses in the loan portfolio. The provision for loan losses is the charge against current earnings that is determined by management as the amount needed to maintain the allowance for loan losses. In determining the adequacy of the allowance for loan losses, and therefore the provision to be charged to current earnings, management relies predominantly on a disciplined credit review and approval process that extends to the full range of the Company's credit exposure. The review process is directed by overall lending policy and is intended to identify, at the earliest possible stage, borrowers facing financial difficulty. Once identified, the magnitude of exposure to individual borrowers is quantified in the form of specific allocations of the allowance for loan losses. Management considers collateral values in the determination of such specific allocations. Additional factors considered by management in evaluating the overall adequacy of the allowance for loan losses include historical net loan losses, the level and composition of nonaccrual, past due and renegotiated loans and the current economic conditions in the region where the Company operates. Management considers the allowance for loan losses a critical accounting policy. Management recognizes that there are risk factors that are inherent in the Company's loan portfolio. All financial institutions face risk factors in their loan portfolios because risk exposure is a function of the business. The Company's operations (and therefore its loans) are concentrated in east central Illinois, an area where agriculture is the dominant industry. Accordingly, lending and other business relationships with agriculture-based businesses are critical to the Company's success. At March 31, 2005, the Company's loan portfolio included $85.5 million of loans to borrowers whose businesses are directly related to agriculture. The balance decreased by $6.1 million from $91.5 million at December 31, 2004. While the Company adheres to sound underwriting practices, including collateralization of loans, any extended period of low commodity prices, significantly reduced yields on crops and/or reduced levels of government assistance to the agricultural industry could result in an increase in the level of problem agriculture loans and potentially result in loan losses within the agricultural portfolio. The Company has $28.6 million of loans to motels, hotels and tourist courts. The performance of these loans is dependent on borrower specific issues as well as the general level of business and personal travel within the region. While the Company adheres to sound underwriting standards, a prolonged period of reduced business or personal travel could result in an increase in nonperforming loans to this business segment and potentially in loan losses. The Company also has $23.9 million of loans to operators of non-residential buildings and $32.2 million of loans to apartment building owners. Analysis of the allowance for loan losses as of March 31, 2005 and 2004, and of changes in the allowance for the three-months ended March 31, 2005 and 2004, was as follows (dollars in thousands): Three months ended March 31, 2005 2004 -------------------------------- Average loans outstanding, net of unearned income $589,492 $547,729 Allowance-beginning of period $ 4,621 $ 4,426 Charge-offs: Real estate-mortgage - 18 Commercial, financial & agricultural 97 101 Installment 50 19 -------------------------------- Total charge-offs 147 138 Recoveries: Real estate-mortgage - - Commercial, financial & agricultural 61 15 Installment 15 10 -------------------------------- Total recoveries 76 25 -------------------------------- Net charge-offs (recoveries) 71 113 Provision for loan losses 187 187 -------------------------------- Allowance-end of period $ 4,737 $ 4,500 ================================ Ratio of annualized net charge-offs to average loans .05% .08% ================================ Ratio of allowance for loan losses to loans outstanding (less unearned interest at end of period) .80% .82% ================================ Ratio of allowance for loan losses to nonperforming loans 127.1% 137.6% ================================ During the first three months of 2005, the Company had charge-offs of $53,000 on two agricultural loans of a single borrower and a charge-off of $44,000 on a commercial loan of a single borrower. The Company also recovered $56,000 on a commercial real estate loan that had been charged-off in a prior period. During the first three months of 2004, the Company had a charge-off of $83,000 on a commercial loan of a single borrower. The Company minimizes credit risk by adhering to sound underwriting and credit review policies. Management and the board of directors of the Company review these policies at least annually. Senior management is actively involved in business development efforts and the maintenance and monitoring of credit underwriting and approval. The loan review system and controls are designed to identify, monitor and address asset quality problems in an accurate and timely manner. On a quarterly basis, the board of directors and management review the status of problem loans and determine a best estimate of the allowance. In addition to internal policies and controls, regulatory authorities periodically review asset quality and the overall adequacy of the allowance for loan losses. Securities The Company's overall investment objectives are to insulate the investment portfolio from undue credit risk, maintain adequate liquidity, insulate capital against changes in market value and control excessive changes in earnings while optimizing investment performance. The types and maturities of securities purchased are primarily based on the Company's current and projected liquidity and interest rate sensitivity positions. The following table sets forth the amortized cost of the securities as of March 31, 2005 and December 31, 2004 (dollars in thousands):
March 31, 2005 December 31, 2004 ----------------------------- --------------------------- Weighted Weighted Amortized Average Amortized Average Cost Yield Cost Yield -------------- -------------- ------------- ------------- U.S. Treasury securities and obligations of U.S. government corporations and agencies $101,432 3.07% $ 92,369 2.81% Obligations of states and political subdivisions 19,634 4.58% 25,133 4.54% Mortgage-backed securities 30,168 4.32% 34,032 3.82% Other securities 17,891 6.16% 17,817 6.02% -------------- -------------- ------------- ------------- Total securities $169,125 3.79% $169,351 3.61% ============== ============== ============= =============
At March 31, 2005, the Company's investment portfolio showed a slight increase in U.S. Treasury securities and obligations of U.S. government corporations and agencies and other securities and a decrease in mortgage-backed securities and obligations of states and political subdivisions securities. The amortized cost, gross unrealized gains and losses and estimated fair values for available-for-sale and held-to-maturity securities by major security type at March 31, 2005 and December 31, 2004 were as follows (in thousands):
Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains (Losses) Value --------------- --------------- ---------------- -------------- March 31, 2005 Available-for-sale: U.S. Treasury securities and obligations of U.S. government corporations & agencies $101,432 $ - $(1,332) $100,100 Obligations of states and political Subdivisions 18,202 516 (7) 18,711 Mortgage-backed securities 30,168 90 (395) 29,863 Federal Home Loan Bank stock 5,365 - - 5,365 Other securities 12,526 538 (2) 13,062 --------------- --------------- ---------------- -------------- Total available-for-sale $167,693 $ 1,144 $(1,736) $167,101 =============== =============== ================ ============== Held-to-maturity: Obligations of states and political subdivisions $ 1,432 $ 43 $ - $1,475 =============== =============== ================ ============== December 31, 2004 Available-for-sale: U.S. Treasury securities and obligations of U.S. government corporations & agencies $92,369 $ 35 $(507) $91,897 Obligations of states and political subdivisions 23,581 755 (2) 24,334 Mortgage-backed securities 34,032 220 (54) 34,198 Federal Home Loan Bank stock 5,293 - - 5,293 Other securities 12,524 575 - 13,099 --------------- --------------- ---------------- -------------- Total available-for-sale $167,799 $ 1,585 $(563) $168,821 =============== =============== ================ ============== Held-to-maturity: Obligations of states and political subdivisions $ 1,552 $ 48 $ (2) $ 1,598 =============== =============== ================ ==============
At March 31, 2005, there was one mortgage-backed security with a fair value of $3,375,000 and an unrealized loss of $46,000 in a continuous unrealized loss position for twelve months or more. This position is due to intermediate and long-term rates declining since the purchase of this security resulting in the market value of the security being lower than book value. Management does not believe any individual unrealized loss as of March 31, 2005 represents an other than temporary impairment. The following table indicates the expected maturities of investment securities classified as available-for-sale and held-to-maturity, presented at amortized cost, at March 31, 2005 and the weighted average yield for each range of maturities. Mortgage-backed securities are included based on their weighted average life. All other securities are shown at their contractual maturity (dollars in thousands).
One year After 1 through After 5 through After ten or less 5 years 10 years years Total -------------------------------------------------------------------------------- Available-for-sale: U.S. Treasury securities and obligations of U.S. government corporations and agencies $26,563 $ 56,400 $13,484 $ 4,985 $101,432 Obligations of state and political subdivisions 1,411 7,526 8,120 1,145 18,202 Mortgage-backed securities 27 30,141 - - 30,168 Federal Home Loan Bank stock - - - 5,365 5,365 Other securities - - - 12,526 12,526 -------------------------------------------------------------------------------- Total investments $28,001 $94,067 $21,604 $24,021 $167,693 ================================================================================ Weighted average yield 2.62% 3.58% 4.22% 5.51% 3.78% Full tax-equivalent yield 2.71% 3.75% 5.03% 5.62% 4.01% ================================================================================ Held-to-maturity: Obligations of state and political subdivisions $ 140 $ 625 $ 135 $ 532 $ 1,432 ================================================================================ Weighted average yield 5.28% 5.49% 5.75% 5.38% 5.45% Full tax-equivalent yield 7.79% 8.12% 8.51% 7.94% 8.06% ================================================================================
The weighted average yields are calculated on the basis of the amortized cost and effective yields weighted for the scheduled maturity of each security. Tax-equivalent yields have been calculated using a 34% tax rate. With the exception of obligations of the U.S. Treasury and other U.S. government agencies and corporations, there were no investment securities of any single issuer, the book value of which exceeded 10% of stockholders' equity at March 31, 2005. Investment securities carried at approximately $142,295,000 and $143,560,000 at March 31, 2005 and December 31, 2004, respectively, were pledged to secure public deposits and repurchase agreements and for other purposes as permitted or required by law. Deposits Funding of the Company's earning assets is substantially provided by a combination of consumer, commercial and public fund deposits. The Company continues to focus its strategies and emphasis on retail core deposits, the major component of funding sources. The following table sets forth the average deposits and weighted average rates for the nine months ended March 31, 2005 and for the year ended December 31, 2004 (dollars in thousands):
March 31, 2005 December 31, 2004 -------------------------------------------------------------- Weighted Weighted Average Average Amount Rate Amount Rate -------------------------------------------------------------- Demand deposits: Non-interest-bearing $ 86,390 - $ 85,437 - Interest-bearing 231,657 .97% 230,300 .68% Savings 60,359 .39% 61,144 .39% Time deposits 268,847 2.87% 261,564 2.80% -------------------------------------------------------------- Total average deposits $647,253 2.04% $638,445 1.43% ==============================================================
The following table sets forth the maturity of time deposits of $100,000 or more at March 31, 2005 and December 31, 2004 (in thousands): March 31, December 31, 2005 2004 -------------------------------------- 3 months or less $25,837 $ 26,916 Over 3 through 6 months 10,553 17,560 Over 6 through 12 months 22,276 22,826 Over 12 months 42,580 48,031 -------------------------------------- Total $101,246 $115,333 ====================================== During the first three months of 2005, the balance of time deposits of $100,000 or more decreased by $14.1 million. The decrease in balances was primarily attributable to a decrease in brokered CDs of $6.7 million and a decrease in public fund deposits of $7.4 million. Balances of time deposits of $100,000 or more include brokered CDs, time deposits maintained for public fund entities, and consumer time deposits. The balance of brokered CDs was $35.4 million and $42.1 million as of March 31, 2005 and December 31, 2004, respectively. The Company also maintained time deposits for the State of Illinois with balances of $1.6 million and $4.4 million as of March 31, 2005 and December 31, 2004, respectively. The State of Illinois deposits are subject to bid annually and could increase or decrease in any given year. Repurchase Agreements and Other Borrowings Securities sold under agreements to repurchase are short-term obligations of First Mid Bank. First Mid Bank collateralizes these obligations with certain government securities that are direct obligations of the United States or one of its agencies. First Mid Bank offers these retail repurchase agreements as a cash management service to its corporate customers. Other borrowings consist of Federal Home Loan Bank ("FHLB") advances, federal funds purchased, loans (short-term or long-term debt) that the Company has outstanding and junior subordinated debentures. Information relating to securities sold under agreements to repurchase and other borrowings as of March 31, 2005 and December 31, 2004 is presented below (dollars in thousands):
March 31, December 31, 2005 2004 -------------- --------------- Securities sold under agreements to repurchase $65,715 $ 59,835 Federal Home Loan Bank advances: Overnight - - Fixed term - due in one year or less 15,300 17,300 Fixed term - due after one year 13,000 8,000 Debt: Loans due in one year or less 6,200 4,200 Loans due after one year 200 400 Junior subordinated debentures 10,310 10,310 -------------- --------------- Total $110,725 $ 100,045 ============== =============== Average interest rate at end of period 3.01% 2.59% Maximum outstanding at any month-end Securities sold under agreements to repurchase $65,715 $63,517 Federal Home Loan Bank advances: Overnight - 7,000 Fixed term - due in one year or less 17,300 17,300 Fixed term - due after one year 13,000 25,300 Debt: Loans due in one year or less 6,200 9,025 Loans due after one year 200 400 Junior subordinated debentures 10,310 10,310 Averages for the period (YTD) Securities sold under agreements to repurchase $61,665 $55,645 Federal Home Loan Bank advances: Overnight - 997 Fixed term - due in one year or less 16,633 8,200 Fixed term - due after one year 9,033 17,920 Federal funds purchased - 218 Debt: Loans due in one year or less 5,600 6,746 Loans due after one year 267 415 Junior subordinated debentures 10,310 8,704 -------------- --------------- Total $ 103,508 $98,845 ============== =============== Average interest rate during the period 3.39% 2.63%
FHLB advances represent borrowings by First Mid Bank to economically fund loan demand. The fixed term advances consist of $28.3 million as follows: * $2.3 million advance at 6.10% with a 5-year maturity, due April 7, 2005 * $5 million advance at 6.12% with a 5-year maturity, due September 6, 2005 * $5 million advance at 5.34% with a 5-year maturity, due December 14, 2005 * $3 million advance at 3.73% with a 1-year maturity, due March 21, 2006 * $5 million advance at 4.58% with a 5-year maturity, due March 22, 2010 * $3 million advance at 5.98% with a 10-year maturity, due March 1, 2011 * $5 million advance at 4.33% with a 10-year maturity, due November 23, 2011 At March 31, 2005, outstanding debt balances include $6,000,000 on a revolving credit agreement with The Northern Trust Company with a floating interest rate of 1.25% over the federal funds rate (4.04% as of March 31, 2005) and set to mature October 22, 2005. This loan was renegotiated on October 23, 2004 and has a maximum available balance of $15 million. The loan is secured by all of the common stock of First Mid Bank. The borrowing agreement contains requirements for the Company and First Mid Bank to maintain various operating and capital ratios and also contains requirements for prior lender approval for certain sales of assets, merger activity, the acquisition or issuance of debt and the acquisition of treasury stock. The Company and First Mid Bank were in compliance with the existing covenants at March 31, 2005 and 2004 and December 31, 2004. The balance also includes a $400,000 remaining on a promissory note resulting from the acquisition of Checkley with an annual interest rate equal to the prime rate listed in the money rate section of the Wall Street Journal (5.25% as of March 31, 2005) and principal payable annually over five years, with a final maturity of January 2007. On February 27, 2004, the Company completed the issuance and sale of $10 million of floating rate trust preferred securities through First Mid-Illinois Statutory Trust I (the "Trust"), a statutory business trust and wholly-owned subsidiary of the Company, as part of a pooled offering. The Company established the Trust for the purpose of issuing the trust preferred securities. Upon adoption of FIN 46R, the Company was required to de-consolidate its investment in the Trust. The $10 million in proceeds from the trust preferred issuance and an additional $310,000 for the Company's investment in common equity of the Trust, a total of $10,310 000, was invested in junior subordinated debentures of the Company. The underlying junior subordinated debentures issued by the Company to the Trust mature in 2034, bear interest at nine-month London Interbank Offered Rate ("LIBOR") plus 280 basis points, reset quarterly, and are callable, at the option of the Company, at par on or after April 7, 2009. The Company intends to use the proceeds of the offering for general corporate purposes. The trust preferred securities issued by the Trust are included as Tier 1 capital of the Company for regulatory capital purposes. On March 1, 2005, the Federal Reserve Board adopted a final rule that allows the continued limited inclusion of trust preferred securities in the calculation of Tier 1 capital for regulatory purposes. The final rule provides a five-year transition period, ending March 31, 2009, for application of the quantitative limits. The Company does not expect the application of the quantitative limits to have an impact on its calculation of Tier 1 capital for regulatory purposes or its classification as well-capitalized. Interest Rate Sensitivity The Company seeks to maximize its net interest margin while maintaining an acceptable level of interest rate risk. Interest rate risk can be defined as the amount of forecasted net interest income that may be gained or lost due to changes in the interest rate environment, a variable over which management has no control. Interest rate risk, or sensitivity, arises when the maturity or repricing characteristics of interest-bearing assets differ significantly from the maturity or repricing characteristics of interest-bearing liabilities. The Company monitors its interest rate sensitivity position to maintain a balance between rate sensitive assets and rate sensitive liabilities. This balance serves to limit the adverse effects of changes in interest rates. The Company's asset liability management committee (ALCO) oversees the interest rate sensitivity position and directs the overall allocation of funds. In the banking industry, a traditional way to measure potential net interest income exposure to changes in interest rates is through a technique known as "static GAP" analysis which measures the cumulative differences between the amounts of assets and liabilities maturing or repricing at various intervals. By comparing the volumes of interest-bearing assets and liabilities that have contractual maturities and repricing points at various times in the future, management can gain insight into the amount of interest rate risk embedded in the balance sheet. The following table sets forth the Company's interest rate repricing GAP for selected maturity periods at March 31, 2005 (dollars in thousands):
Number of Months Until Next Repricing Opportunity 0-1 1-3 3-6 6-12 12+ --------------- --------------- ---------------- --------------- --------------- Interest-earning assets: Federal funds sold $ 8,475 $ - $ - $ - $ - Taxable investment securities 14,018 13,060 2,987 2,482 111,390 Nontaxable investment securities 345 988 443 3,699 19,121 Loans 180,752 34,612 31,543 68,123 278,267 --------------- --------------- ---------------- --------------- --------------- Total $ 203,590 $ 48,660 $34,973 $ 74,304 $408,778 --------------- --------------- ---------------- --------------- --------------- Interest-bearing liabilities: Savings and N.O.W. accounts $37,875 $2,681 $ 1,736 $ 3,841 $164,284 Money market accounts 51,975 592 888 1,684 28,995 Other time deposits 31,679 17,301 27,716 63,887 117,763 Short-term borrowings/debt 68,015 - 5,000 14,200 - Long-term borrowings/debt - - - - 23,510 --------------- --------------- ---------------- --------------- --------------- Total $189,544 $ 20,574 $ 35,340 $ 83,612 $334,552 =============== =============== ================ =============== =============== $ 14,046 Periodic GAP $ 28,086 $ (367) $ (9,308) $74,226 =============== =============== ================ =============== =============== Cumulative GAP $ 14,046 $ 42,132 $41,765 $ 32,457 $106,683 =============== =============== ================ =============== =============== GAP as a % of interest-earning assets: Periodic 1.8% 3.6% 0.0% (1.2%) 9.6% Cumulative 1.8% 5.5% 5.4% 4.2% 13.8%
The static GAP analysis shows that at March 31, 2005, the Company was asset sensitive, on a cumulative basis, through the twelve-month time horizon. This indicates that future increases in interest rates, if any, could have a positive effect on net interest income. Conversely, future decreases in interest rates could have an adverse effect on net interest income. There are several ways the Company measures and manages the exposure to interest rate sensitivity, including static GAP analysis. The Company's ALCO also uses other financial models to project interest income under various rate scenarios and prepayment/extension assumptions consistent with First Mid Bank's historical experience and with known industry trends. ALCO meets at least monthly to review the Company's exposure to interest rate changes as indicated by the various techniques and to make necessary changes in the composition terms and/or rates of the assets and liabilities. Based on all information available, management does not believe that changes in interest rates, which might reasonably be expected to occur in the next twelve months, will have a material adverse effect on the Company's net interest income. Capital Resources At March 31, 2005, the Company's stockholders' equity had increased $682,000 or 1.0% to $69,836,000 from $69,154,000 as of December 31, 2004. During the first three months of 2005, net income contributed $2,435,000 to equity before the payment of dividends to common stockholders. The change in market value of available-for-sale investment securities decreased stockholders' equity by $985,000, net of tax. Additional purchases of treasury stock (39,329 shares at an average cost of $39.82 per share) decreased stockholders' equity by $1,566,000. The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Bank holding companies follow minimum regulatory requirements established by the Board of Governors of the Federal Reserve System ("Federal Reserve System"), and First Mid Bank follows similar minimum regulatory requirements established for national banks by the Office of the Comptroller of the Currency ("OCC"). Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary action by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Quantitative measures established by each regulatory agency to ensure capital adequacy require the reporting institutions to maintain a minimum total risk-based capital ratio of 8% and a minimum leverage ratio of 3% for the most highly rated banks that do not expect significant growth. All other institutions are required to maintain a minimum leverage ratio of 4%. Management believes that, as of March 31, 2005 and December 31, 2004, the Company and First Mid Bank met all capital adequacy requirements. The trust preferred securities issued by First Mid-Illinois Statutory Trust I are included as Tier 1 capital of the Company for regulatory capital purposes. On March 1, 2005, the Federal Reserve Board adopted a final rule that allows the continued limited inclusion of trust preferred securities in the calculation of Tier 1 capital for regulatory purposes. The final rule provides a five-year transition period, ending March 31, 2009, for application of the quantitative limits. The Company does not expect the application of the quantitative limits to have an impact on its calculation of Tier 1 capital for regulatory purposes or its classification as well-capitalized. As of March 31, 2005, the most recent notification from the OCC categorized First Mid Bank as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios must be maintained as set forth in the following table (dollars in thousands). There are no conditions or events since that notification that management believes have changed this categorization.
To Be Well- Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions -------------------------- ------------------------- ------------------------- Amount Ratio Amount Ratio Amount Ratio ------------- ------------ ------------ ------------ ------------ ------------ March 31, 2005 Total Capital (to risk-weighted assets) Company $72,708 12.15% $47,892 > 8.00% N/A N/A - First Mid Bank 72,380 12.17% 47,588 > 8.00% $59,486 >10.00% - - Tier 1 Capital (to risk-weighted assets) Company 67,971 11.35% 23,946 > 4.00% N/A N/A - First Mid Bank 67,643 11.37% 23,794 > 4.00% 35,691 > 6.00% - - Tier 1 Capital (to average assets) Company 67,971 8.36% 32,531 > 4.00% N/A N/A - First Mid Bank 67,643 8.35% 32,392 > 4.00% 40,490 > 5.00% - - December 31, 2004 Total Capital (to risk-weighted assets) Company $70,787 11.71% $48,371 > 8.00% N/A N/A - First Mid Bank 71,233 11.88% 47,988 > 8.00% $59,986 >10.00% - - Tier 1 Capital (to risk-weighted assets) Company 66,166 10.94% 24,185 > 4.00% N/A N/A - First Mid Bank 66,612 11.10% 23,994 > 4.00% 35,991 > 6.00% - - Tier 1 Capital (to average assets) Company 66,166 7.99% 33,132 > 4.00% N/A N/A - First Mid Bank 66,612 8.08% 32,961 > 4.00% 41,201 > 5.00% - -
Banks and financial holding companies are expected to operate at or above the minimum capital requirements. These ratios are in excess of regulatory minimums and allow the Company to operate without capital adequacy concerns. Stock Plans Participants may purchase Company stock under the following four plans of the Company: the Deferred Compensation Plan, the First Retirement and Savings Plan, the Dividend Reinvestment Plan, and the Stock Incentive Plan. For more detailed information on these plans, refer to the Company's 2004 Annual Report on Form 10-K. On August 5, 1998, the Company announced a stock repurchase program for up to 3% of its common stock. In March 2000, the Board approved the repurchase of an additional 5% of the Company's common stock. In September 2001, the Board approved the repurchase of $3 million of additional shares of the Company's common stock and in August 2002, the Board approved the repurchase of $5 million of additional shares of the Company's common stock. In September 2003, the Board approved the repurchase of $10 million of additional shares of the Company's common stock. On April 27, 2004, the Board approved the repurchase of an additional $5 million shares of the Company's common stock, bringing the aggregate total on March 31, 2005 to 8% of the Company's common stock plus $23 million of additional shares. During the three-month period ending March 31, 2005, the Company repurchased 39,289 shares at a total price of $1,566,000. Since 1998, the Company has repurchased a total of 1,156,375 shares at a total price of $26,466,000. As of March 31, 2005, the Company was authorized per all repurchase programs to purchase $2,740,000 in additional shares. Liquidity Liquidity represents the ability of the Company and its subsidiaries to meet all present and future financial obligations arising in the daily operations of the business. Financial obligations consist of the need for funds to meet extensions of credit, deposit withdrawals and debt servicing. The Company's liquidity management focuses on the ability to obtain funds economically through assets that may be converted into cash at minimal costs or through other sources. The Company's other sources of cash include overnight federal fund lines, Federal Home Loan Bank advances, deposits of the State of Illinois, the ability to borrow at the Federal Reserve Bank of Chicago, and the Company's operating line of credit with The Northern Trust Company. Details for the sources include: * First Mid Bank has $17 million available in overnight federal fund lines, including $10 million from Harris Trust and Savings Bank of Chicago and $7 million from The Northern Trust Company. Availability of the funds is subject to First Mid Bank meeting minimum regulatory capital requirements for total capital to risk-weighted assets and Tier 1 capital to total average assets. As of March 31, 2005, First Mid Bank's ratios of total capital to risk-weighted assets of 12.17% and Tier 1 capital to total average assets of 8.35% exceeded minimum regulatory requirements. * First Mid Bank can also borrow from the Federal Home Loan Bank as a source of liquidity. Availability of the funds is subject to the pledging of collateral to the Federal Home Loan Bank. Collateral that can be pledged includes one-to-four family residential real estate loans and securities. At March 31, 2005, the excess collateral at the Federal Home Loan Bank will support approximately $50 million of additional advances. * First Mid Bank also receives deposits from the State of Illinois. The receipt of these funds is subject to competitive bid and requires collateral to be pledged at the time of placement. * First Mid Bank is also a member of the Federal Reserve System and can borrow funds provided that sufficient collateral is pledged. * In addition, the Company has a revolving credit agreement in the amount of $15 million with The Northern Trust Company. The Company has an outstanding balance of $6,000,000 as of March 31, 2005, and $9,000,000 in available funds. On October 23, 2004, the Company entered into an agreement with The Northern Trust Company to renew this loan for one year with a maturity date of October 22, 2005, under the same terms and conditions. The agreement contains requirements for the Company and First Mid Bank to maintain various operating and capital ratios and for prior lender approval for certain sales of assets, merger activity, the acquisition or issuance of debt, and the acquisition of treasury stock. The Company and First Mid Bank were in compliance with the existing covenants at March 31, 2005. Management monitors its expected liquidity requirements carefully, focusing primarily on cash flows from: * lending activities, including loan commitments, letters of credit and mortgage prepayment assumptions; * deposit activities, including seasonal demand of private and public funds; * investing activities, including prepayments of mortgage-backed securities and call provisions on U.S. government treasuries and agency securities; and * operating activities, including scheduled debt repayments and dividends to stockholders. The following table summarizes significant contractual obligations and other commitments at March 31, 2005 (in thousands):
Less than More than Total 1 year 1-3 years 3-5 years 5 years -------------- --------------- --------------- --------------- -------------- Time deposits $261,289 $143,312 $106,767 $10,923 $ 287 Debt 16,710 6,200 200 - 10,310 Other borrowings 94,015 81,015 - 5,000 8,000 Operating leases 4,449 457 837 890 2,265 Supplemental retirement 749 50 100 100 499 -------------- --------------- --------------- --------------- -------------- $377,212 $231,034 $107,904 $16,913 $21,361 ============== =============== =============== =============== ==============
For the three-month period ended March 31, 2005, net cash of $5.2 million and $3.6 million was provided from operating activities and investing activities, respectively, while financing activities used net cash of $3.8 million. In total, cash and cash equivalents increased by $5.0 million since year-end 2004. On February 27, 2004, the Company completed the issuance and sale of $10 million of floating rate trust preferred securities through First Mid-Illinois Statutory Trust I (the "Trust"), a statutory business trust and wholly-owned subsidiary of the Company, as part of a pooled offering. The Company established the Trust for the purpose of issuing the trust preferred securities. Upon adoption of FIN 46R, the Company was required to de-consolidate its investment in the Trust. The $10 million in proceeds from the trust preferred issuance and an additional $310,000 for the Company's investment in common equity of the Trust, a total of $10,310 000, was invested in junior subordinated debentures of the Company. The underlying junior subordinated debentures issued by the Company to the Trust mature in 2034, bear interest at three-month London Interbank Offered Rate ("LIBOR") plus 280 basis points, reset quarterly, and are callable, at the option of the Company, at par on or after April 7, 2009. The Company has used the proceeds of the offering for general corporate purposes. The trust preferred securities issued by the Trust are included as Tier 1 capital of the Company for regulatory capital purposes. Management believes it has adequate sources of liquidity. First Mid Bank enters into financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include lines of credit, letters of credit and other commitments to extend credit. Each of these instruments involves, to varying degrees, elements of credit, interest rate and liquidity risk in excess of the amounts recognized in the consolidated balance sheets. The Company uses the same credit policies and requires similar collateral in approving lines of credit and commitments and issuing letters of credit as it does in making loans. The exposure to credit losses on financial instruments is represented by the contractual amount of these instruments. However, the Company does not anticipate any losses from these instruments. The off-balance sheet financial instruments whose contract amounts represent credit risk at March 31, 2005 and December 31, 2004 were as follows (in thousands): March 31, December 31, 2005 2004 ------------- --------------- Unused commitments, including lines of credit: Commercial real estate $ 33,228 $ 25,837 Commercial operating 41,404 35,986 Home equity 17,186 16,002 Other 17,107 13,577 ------------- --------------- Total $108,925 $ 91,402 ============= =============== Standby letters of credit $ 2,962 $ 2,840 ============= =============== Commitments to originate credit represent approved commercial, residential real estate and home equity loans that generally are expected to be funded within ninety days. Lines of credit are agreements by which the Company agrees to provide a borrowing accommodation up to a stated amount as long as there is no violation of any condition established in the loan agreement. Both commitments to originate credit and lines of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the lines and some commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued by the Company to guarantee the financial performance of customers to third parties. Standby letters of credit are primarily issued to facilitate trade or support borrowing arrangements and generally expire in one year or less. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending credit facilities to customers. The maximum amount of credit that would be extended under letters of credit is equal to the total off-balance sheet contract amount of such instrument. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There has been no material change in the market risk faced by the Company since December 31, 2004. For information regarding the Company's market risk, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2004. ITEM 4. CONTROLS AND PROCEDURES The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's "disclosure controls and procedures" (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of the end of the period covered by this report. Based on such evaluation, such officers have concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures are effective in bringing to their attention on a timely basis material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic filings under the Exchange Act. Further, there have been no changes in the Company's internal control over financial reporting during the last fiscal quarter that have materially affected or that are reasonably likely to affect materially the Company's internal control over financial reporting. PART II ITEM 1. LEGAL PROCEEDINGS Since First Mid Bank acts as a depository of funds, it is named from time to time as a defendant in lawsuits (such as garnishment proceedings) involving claims as to the ownership of funds in particular accounts. Management believes that all such litigation as well as other pending legal proceedings in which the Company is involved constitute ordinary, routine litigation incidental to the business of the Company and that such litigation will not materially adversely affect the Company's consolidated financial condition. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER PURCHASES OF EQUITY SECURITIES - --------------------------------------------------------------------------------------------------------------------------- Period (a) Total Number of (b) Average Price (c) Total Number of Shares (d) Approximate Dollar Value of Shares that Purchased as Part of May Yet Be Purchased Publicly Announced Plans Under the Plans or Shares Purchased Paid per Share or Programs Programs - ---------------------- --------------------- ----------------------- ---------------------------- ------------------------- January 1, 2005 - January 31, 2005 8,794 $39.50 8,794 $3,959,000 February 1, 2005 - February 28, 2005 30,071 $39.90 30,071 $2,759,000 March 1, 2005 - March 31, 2005 464 $40.65 464 $2,740,000 --------------------- ----------------------- ---------------------------- ------------------------- Total 39,329 $39.82 39,329 $2,740,000 ===================== ======================= ============================ =========================
On August 5, 1998, the Company announced a stock repurchase program for up to 3% of its common stock. In March 2000, the Board approved the repurchase of an additional 5% of the Company's common stock. In September 2001, the Board approved the repurchase of $3 million of additional shares of the Company's common stock and in August 2002, the Board approved the repurchase of $5 million of additional shares of the Company's common stock. In September 2003, the Board approved the repurchase of $10 million of additional shares of the Company's common stock. On April 27, 2004, the Board approved the repurchase of an additional $5 million shares of the Company's common stock, bringing the aggregate total on March 31, 2005 to 8% of the Company's common stock plus $23 million of additional shares. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS (a) Exhibits: The exhibits required by Item 601 of Regulation S-K and filed herewith are listed in the Exhibit Index that follows the Signature Page and that immediately precedes the exhibits filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST MID-ILLINOIS BANCSHARES, INC. (Registrant) Date: May 4, 2005 /s/ William S. Rowland William S. Rowland President and Chief Executive Officer /s/ Michael L. Taylor Michael L. Taylor Chief Financial Officer Exhibit Index to Quarterly Report on Form 10-Q Exhibit Number Description and Filing or Incorporation Reference - -------------------------------------------------------------------------------- 11.1 Statement re: Computation of Earnings Per Share (Filed herewith on page 6) 31.1 Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 31.1 Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 I, William S. Rowland, certify that: 1. I have reviewed this quarterly report on Form 10-Q of First Mid-Illinois Bancshares, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 4, 2005 By: /s/ William S. Rowland William S. Rowland, President and Chief Executive Officer Exhibit 31.2 Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 I, Michael L. Taylor, certify that: 1. I have reviewed this report on Form 10-Q of First Mid-Illinois Bancshares, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 4, 2005 By: /s/ Michael L. Taylor Michael L. Taylor, Chief Financial Officer Exhibit 32.1 Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of First Mid-Illinois Bancshares, Inc. (the "Company") on Form 10-Q for the period ended March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William S. Rowland, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 4, 2005 /s/ William S. Rowland William S. Rowland President and Chief Executive Officer Exhibit 32.2 Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of First Mid-Illinois Bancshares, Inc. (the "Company") on Form 10-Q for the period ended March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael L. Taylor, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 4, 2005 /s/ Michael L. Taylor Michael L. Taylor Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----