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 June 30, 2003
Commission file number: 0-13368
FIRST MID-ILLINOIS BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State of incorporation)
37-1103704
(I.R.S. employer identification no.)
1515 Charleston Avenue, Mattoon, Illinois 61938
(Address and zip code of principal executive offices)
(217) 234-7454
(Registrant's telephone number,
including area code)
Indicate by check mark whether the 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 Company
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 August 13, 2003, 3,158,483 common shares, $4.00 par value, were
outstanding.
PART I
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets (unaudited) June 30, December 31,
(In thousands, except share data) 2003 2002
------------ ------------
Assets
Cash and due from banks:
Non-interest bearing $ 19,746 $ 22,437
Interest bearing 5,762 19,995
Federal funds sold 1,875 27,225
------------ ------------
Cash and cash equivalents 27,383 69,657
Investment securities:
Available-for-sale, at fair value 173,743 166,415
Held-to-maturity, at amortized cost (estimated
fair value of $1,821 and $1,927 at June 30,
2003 and December 31, 2002, respectively) 1,797 1,902
Loans 523,258 499,864
Less allowance for loan losses (4,122) (3,723)
------------ ------------
Net loans 519,136 496,141
Premises and equipment, net 16,663 16,916
Accrued interest receivable 5,146 6,362
Goodwill, net 9,034 9,034
Intangible assets, net 4,378 4,743
Other assets 4,730 5,070
------------ ------------
Total assets $762,010 $ 776,240
============ ============
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing $ 87,739 $ 84,025
Interest bearing 520,425 529,427
------------ ------------
Total deposits 608,164 613,452
Accrued interest payable 1,628 1,793
Securities sold under agreements to repurchase 38,303 44,184
Other borrowings 39,925 44,625
Other liabilities 3,997 5,379
------------ ------------
Total liabilities 692,017 709,433
------------ ------------
Stockholders' equity:
Common stock, $4 par value; authorized 6,000,000
shares; issued 3,653,857 shares in 2003 and
3,603,737 shares in 2002 14,615 14,415
Additional paid-in capital 15,625 14,450
Retained earnings 49,589 45,896
Deferred compensation 1,791 1,589
Accumulated other comprehensive income 2,566 2,373
Less treasury stock at cost, 484,613 shares
in 2003 and 414,562 shares in 2002 (14,193) (11,916)
------------ ------------
Total stockholders' equity 69,993 66,807
------------ ------------
Total liabilities and stockholders' equity $762,010 $776,240
============ ============
See accompanying notes to unaudited consolidated financial statements.
Consolidated Statements of Income (unaudited) Three months ended Six months ended
(In thousands, except per share data) June 30, June 30,
------------ -------------
2003 2002 2003 2002
------------ ------------ ------------- -------------
Interest income:
Interest and fees on loans $ 8,075 $ 8,402 $16,083 $16,821
Interest on investment securities 1,573 1,872 3,175 3,778
Interest on federal funds sold 43 45 97 75
Interest on deposits with
other financial institutions 38 1 94 11
------------ ------------ ------------- -------------
Total interest income 9,729 10,320 19,449 20,685
------------ ------------ ------------- -------------
Interest expense:
Interest on deposits 2,571 2,993 5,269 6,374
Interest on securities sold under agreements
to repurchase 68 86 132 172
Interest on Federal Home Loan Bank advances 402 480 820 930
Interest on federal funds purchased - 1 - 2
Interest on debt 63 52 123 85
------------ ------------ ------------- -------------
Total interest expense 3,104 3,612 6,344 7,563
------------ ------------ ------------- -------------
Net interest income 6,625 6,708 13,105 13,122
------------ ------------ ------------- -------------
Provision for loan losses 250 150 500 275
------------ ------------ ------------- -------------
Net interest income after provision for loan losses 6,375 6,558 12,605 12,847
------------ ------------ ------------- -------------
Other income:
Trust revenues 489 450 945 928
Brokerage commissions 67 76 124 134
Insurance commissions 367 363 778 554
Service charges 1,100 780 2,138 1,517
Securities gains, net - 73 370 116
Mortgage banking revenue 533 377 1,082 703
Other 559 357 1,108 847
------------ ------------ ------------- -------------
Total other income 3,115 2,476 6,545 4,799
------------ ------------ ------------- -------------
Other expense:
Salaries and employee benefits 3,415 3,096 6,729 6,102
Net occupancy and equipment expense 1,060 1,009 2,123 1,980
Amortization of other intangible assets 181 191 365 370
Stationery and supplies 143 123 287 278
Legal and professional 255 258 486 496
Marketing and promotion 190 150 322 309
Other 1,036 1,187 2,034 2,110
------------ ------------ ------------- -------------
Total other expense 6,280 6,014 12,346 11,645
------------ ------------ ------------- -------------
Income before income taxes 3,210 3,020 6,804 6,001
Income taxes 1,088 1,014 2,320 1,986
------------ ------------ ------------- -------------
Net income $ 2,122 $ 2,006 $ 4,484 $ 4,015
============ ============ ============= =============
Per share data:
Basic earnings per share $.67 $.60 $ 1.41 $ 1.19
Diluted earnings per share $.67 $.59 $ 1.40 $ 1.18
============ ============ ============= =============
See accompanying notes to unaudited consolidated financial statements.
Consolidated Statements of Cash Flows (unaudited) Six months ended
June 30,
---------------------
(In thousands) 2003 2002
----------- ------------
Cash flows from operating activities:
Net income $ 4,484 $ 4,015
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 500 275
Depreciation, amortization and accretion, net 1,527 1,627
Gain on sale of securities, net (370) (116)
30
Loss on sale of other real property owned, net 3016 16
Gain on sale of mortgage loans held for sale, net (1,022) (512)
Origination of mortgage loans held for sale (74,815) (37,115)
Proceeds from sale of mortgage loans held for sale 76,417 39,905
Decrease in other investments - 250
(Increase) decrease in other assets 1,526 (2,080)
Increase (decrease) in other liabilities (806) 1,686
----------- ------------
Net cash provided by operating activities 7,471 7,951
----------- ------------
Cash flows from investing activities:
Capitalization of mortgage servicing rights (1) (1)
Purchases of premises and equipment (710) (624)
Net increase in loans (24,075) (11,882)
Proceeds from sales of securities available-for-sale 13,815 10,646
Proceeds from maturities of:
Securities available-for-sale 57,860 17,476
Securities held-to-maturity 20,105 301
Purchases of securities available-for-sale (98,375) (25,349)
Purchases of securities held-to-maturity (144) (84)
Net cash provided by acquisition - 15
----------- ------------
Net cash used in investing activities (31,525) (9,502)
----------- ------------
Cash flows from financing activities:
Net decrease in deposits (5,288) (5,551)
Decrease in repurchase agreements (5,881) (5,028)
Decrease in short-term FHLB advances (5,000) -
Increase in long-term FHLB advances - 5,000
Increase in other borrowings - 220
Proceeds from short-term debt 500 -
Repayment of short-term debt (200) -
Proceeds from issuance of common stock 502 367
Purchase of treasury stock (2,075) (614)
Dividends paid on common stock (778) (663)
----------- ------------
Net cash used in financing activities (18,220) (6,269)
----------- ------------
Decrease in cash and cash equivalents (42,274) (7,820)
Cash and cash equivalents at beginning of period 69,657 33,096
----------- ------------
Cash and cash equivalents at end of period $27,383 $25,276
=========== ============
Additional disclosures of cash flow information:
Cash paid during the period for:
Interest $ 6,509 $ 8,129
Income taxes 2,788 2,052
Loans transferred to real estate owned 108 338
Dividends reinvested in common stock 873 925
Notes to Consolidated Financial Statements
(Unaudited)
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.
Summary of Significant Accounting Policies
Basis of Accounting and Consolidation
The unaudited consolidated financial statements include the accounts of
First Mid-Illinois Bancshares, Inc. ("Company") and its wholly-owned
subsidiaries: Mid-Illinois Data Services, Inc. ("MIDS"), The Checkley Agency,
Inc. ("Checkley") and First Mid-Illinois Bank & Trust, N.A. ("First Mid Bank")
and its wholly-owned subsidiary First Mid-Illinois Insurance Services, Inc.
("First Mid Insurance"). All significant inter-company balances and transactions
have been eliminated in consolidation. The financial information reflects all
adjustments, which, in the opinion of management, are necessary for a fair
presentation of the results of the interim periods ended June 30, 2003, and
2002, and all such adjustments are of a normal recurring nature. The results of
the interim period ended June 30, 2003, are not necessarily indicative of the
results expected for the year ending December 31, 2003.
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 accounting principles
generally accepted in the United States of America 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 2002 Annual Report on Form 10-K.
Recent Accounting Pronouncements
In July 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. The Company adopted the provisions of SFAS 146 for exit
or disposal activities initiated after December 31, 2002 on January 1, 2003, as
required. The adoption did not have a material effect on the Company's financial
position or results of operations.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). This Interpretation provides
guidance on disclosures to be made by a guarantor about its obligations under
certain guarantees that it has issued. It also clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee. The disclosure
requirements were effective for financial statement periods after December 15,
2002. The Company adopted the initial measurement and recognition provisions
applicable to guarantees issued or modified after December 31, 2002 on January
1, 2003, as required. The adoption did not have a material impact on the
Company's financial position or results of operations.
In January 2003, the FASB issued Interpretation No. 46, "Consolidated
Variable Interest Entities"("FIN 46"). The objective of FIN 46 is to provide
guidance on how to identify a variable interest entity and determine when the
assets, liabilities, non-controlling interests, and results of operations of a
variable interest in an entity need to be included in a company's consolidated
financial statements. A company that holds variable interests in an entity will
need to consolidate the entity if the company's interest in the variable
interest entity is such that the company will absorb a majority of the variable
interest entity's losses and/or receive a majority of the entity's expected
residual returns, if they occur. FIN 46 also requires additional disclosures by
primary beneficiaries and other significant variable interest holders. The
provisions of FIN 46 will be effective July 1, 2003. The Company does not expect
the provisions of FIN 46 to have a material impact on its financial position or
results of operations.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149
amends and clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities
under Statement 133. SFAS 149 is effective for contracts entered into or
modified after June 30, 2003, and for hedging relationships designated after
June 30, 2003. Management does not expect the provisions of SFAS 149 will have a
material impact on the Company's financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity" ("SFAS 150"). SFAS 150 establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances), many of which were previously classified as equity. SFAS 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. Management does not expect the provisions of SFAS
150 will have a material impact on the Company's financial position or results
of operations.
Comprehensive Income
The Company's comprehensive income for the three and six-month periods
ended June 30, 2003 and 2002 was as follows (in thousands):
Three months ended Six months ended
June 30, June 30,
--------------------- --------------------
(In thousands) 2003 2002 2003 2002
---------- ---------- ---------- ---------
Net income $2,122 $2,006 $4,484 $4,015
---------- ---------- ---------- ---------
Other comprehensive income:
Unrealized gain during the period 951 2,191 686 2,149
Less realized gain during the period - (73) (370) (116)
Tax effect (369) (821) (123) (788)
---------- ---------- ---------- ---------
Comprehensive income $2,704 $3,303 $4,677 $5,260
========== ========== ========== =========
Earnings Per Share
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 and six-month periods ended June 30, 2003 and 2002 were as follows:
Three months ended Six months ended
June 30, June 30,
------------------------------ ------------------------------
2003 2002 2003 2002
--------------- -------------- -------------- ---------------
Basic Earnings per Share:
Net income $2,122,000 $2,006,000 $4,484,000 $4,015,000
Weighted average common shares outstanding 3,161,704 3,385,886 3,174,263 3,385,255
=============== ============== ============== ===============
Basic earnings per common share $ .67 $ .60 $ 1.41 $ 1.19
=============== ============== ============== ===============
Diluted Earnings per Share:
Weighted average common shares outstanding 3,161,704 3,385,886 3,174,263 3,385,255
Assumed conversion of stock options 44,933 25,997 40,061 22,095
--------------- -------------- -------------- ---------------
Diluted weighted average common
shares outstanding 3,206,637 3,413,415 3,214,324 3,408,684
=============== ============== ============== ===============
Diluted earnings per common share $ .67 $ .59 $ 1.40 $ 1.18
=============== ============== ============== ===============
Mergers and Acquisitions
On January 29, 2002, the Company acquired all of the issued and
outstanding stock of Checkley, an insurance agency headquartered in Mattoon,
Illinois. Checkley was purchased for cash with a portion ($750,000) paid at
closing and the remainder ($1,000,000) to be paid, pursuant to a promissory
note, over a five-year period ending January 2007. Checkley operates as a
separate subsidiary of the Company and provides customers with commercial
property, casualty, life, auto and home insurance. In order to facilitate this
acquisition, the Company became a financial holding company under the
Gramm-Leach-Bliley Act on December 14, 2001. The results of Checkley's
operations are included in the consolidated financial statements since the
acquisition date.
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 insurance agencies acquired, and
intangible assets arising from the rights to service mortgage loans for others.
As of January 1, 2002, the date of adoption of SFAS 142 and the
effective date of SFAS 147, the Company had unamortized goodwill of $9 million,
which was subject to the transition provisions of SFAS 142 and SFAS 147, and is
no longer being amortized. The Company also had $2.1 million of intangible
assets for an acquisition of a branch whereby the liabilities assumed were
greater than the assets obtained and was not considered an acquisition of a
business, $1.3 million of core deposit intangibles, and $217,000 of intangible
assets arising from the rights to service mortgage loans for others, all which
continue to be amortized. In January 2002, the Company added an additional $1.9
million of amortizable intangibles as a result of the acquisition of Checkley.
The following table presents gross carrying amount and accumulated
amortization by major intangible asset class as of June 30, 2003 and December
31, 2002 (in thousands):
June 30, 2003 December 31, 2002
--------------------------- --------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Value Amortization Value Amortization
------------ -------------- ------------ -------------
Goodwill not subject to amortization $12,794 $3,760 $12,794 $3,760
Intangibles from branch acquisition 3,015 1,257 3,015 1,157
Core deposit intangibles 2,805 1,952 2,805 1,807
Mortgage servicing rights 608 475 608 451
Customer list intangibles 1,904 270 1,904 174
------------ -------------- ------------ -------------
$21,126 $7,714 $21,126 $7,349
============ ============== ============ =============
Total amortization expense for the periods ended June 30, 2003 and 2002
was as follows (in thousands):
2003 2002
---------- ----------
Intangibles from branch acquisitions $100 $100
Core deposit intangibles 145 155
Mortgage servicing rights 25 36
Customer list intangibles 95 79
---------- ----------
$365 $370
========== ==========
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 6/30/03 $365
Estimated amortization expense:
For period 7/1/03-12/31/03 $354
For period ended 12/31/04 $614
For period ended 12/31/05 $578
For period ended 12/31/06 $579
For period ended 12/31/07 $515
For period ended 12/31/08 $454
In accordance with the provisions of SFAS 142, the Company
performed testing of goodwill for impairment as of September 30, 2002 and
determined as of that date that goodwill was not impaired. Management also
concluded that the remaining amounts and amortization periods were appropriate
for all intangible assets. The provisions of SFAS 142 require annual testing of
goodwill and as such, the next testing of goodwill for impairment will be as of
September 30, 2003.
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. As such,
compensation cost based on fair value at grant date has not been recognized for
its 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.
June 30,
2003 2002
---------- ----------
Net income:
As reported $4,484 $4,015
Pro forma 4,381 3,935
Basic Earnings Per Share:
As reported $ 1.41 $ 1.19
Pro forma 1.38 1.16
Diluted Earnings Per Share:
As reported $ 1.40 $ 1.18
Pro forma 1.36 1.15
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, June 30,
2003 and 2002. 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' market area and accounting principles, policies and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. Further
information concerning the Company and its business, including additional
factors that could materially affect the Company's financial results, is
included in the Company's filings with the Securities and Exchange Commission.
Overview
Net income for the three months ended June 30, 2003 was $2,122,000
($.67 diluted EPS), an increase of $116,000 from $2,006,000 ($.59 diluted EPS)
for the same period in 2002. Net income for the six months ended June 30, 2003
was $4,484,000 ($1.40 diluted EPS), an increase of $469,000 from $4,015,000
($1.18 diluted EPS) for the same period in 2002.
A summary of the factors that contributed to the changes in net income
is shown in the table below.
2003 vs. 2002
Three months Six months
(In thousands) ended June 30 ended June 30
-------------- --------------
Net interest income $(183) $(242)
Other income, including
securities transactions 639 1,746
Other expenses (266) (701)
Income taxes (74) (334)
-------------- --------------
Increase in net income $ 116 $ 469
============== ==============
The following table shows the Company's annualized performance ratios
for the six months ended June 30, 2003 and 2002, as compared to the performance
ratios for the year ended December 31, 2002:
June 30, June 30, December 31,
2003 2002 2002
---------- ---------- -------------
Return on average assets 1.17% 1.15% 1.11%
Return on average equity 13.15% 12.03% 11.82%
Average equity to average assets 8.89% 9.54% 9.36%
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.
For purposes of the following discussion and analysis, the interest
earned on tax-exempt securities is adjusted to an amount comparable to interest
subject to normal income taxes. The adjustment is referred to as the
tax-equivalent adjustment. The Company's average balances, interest income and
expense and rates earned or paid for major balance sheet categories are set
forth in the following table (dollars in thousands):
Six Months Ended Six Months Ended
June 30, 2003 June 30, 2002
-----------------------------------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
-----------------------------------------------------------------
ASSETS
Interest-bearing deposits $ 17,311 $ 94 1.09% $ 1,448 $ 11 1.52%
Federal funds sold 17,364 97 1.12% 9,401 75 1.60%
Investment securities
Taxable 139,097 2,542 3.66% 132,606 3,107 4.69%
Tax-exempt (1) 28,756 959 6.67% 28,957 1,017 7.02%
Loans (2)(3) 510,092 16,083 6.31% 471,736 16,821 7.13%
-----------------------------------------------------------------
Total earning assets 712,620 19,775 5.55% 644,148 21,031 6.53%
-----------------------------------------------------------------
Cash and due from banks 17,986 18,442
Premises and equipment 16,830 16,544
Other assets 23,368 25,035
Allowance for loan losses (3,955) (3,763)
---------- ---------
Total assets $766,849 $700,406
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits
Demand deposits $216,676 $ 1,070 .99% $192,912 $ 1,333 1.38%
Savings deposits 55,021 182 .66% 50,203 404 1.61%
Time deposits 255,133 4,017 3.15% 234,412 4,637 3.96%
Securities sold under
agreements to repurchase 41,954 132 .63% 32,094 172 1.07%
FHLB advances 31,902 820 5.14% 36,546 930 5.09%
Federal funds purchased 28 - .00% 156 2 2.56%
Other debt 9,192 123 2.68% 5,196 85 3.27%
-----------------------------------------------------------------
Total interest-bearing
Liabilities 609,906 6,344 2.08% 551,519 7,563 2.74%
-----------------------------------------------------------------
Non interest-bearing demand deposits 81,966 75,269
Other liabilities 6,768 6,877
Stockholders' equity 68,209 66,741
---------- ---------
Total liabilities & equity $766,849 $700,406
========== =========
Net interest income (TE) $13,431 $13,468
========== =========
Net interest spread 3.47% 3.79%
Impact of non-interest
bearing funds .30% .39%
---------- ----------
Net yield on interest-
earning assets (TE) 3.77% 4.18%
========== ==========
(1) Interest income and rates are presented on a tax-equivalent basis ("TE")
assuming a federal income tax rate of 34%.
(2) Loan fees are included in interest income and are not material. (3)
Nonaccrual loans 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 (TE) for the
six months ended June 30, 2003, as compared to the same period in 2002 (in
thousands):
For the six months ended June 30,
2003 compared to 2002
Increase / (Decrease)
Total Rate/
Change Volume Rate Volume(4)
--------- --------- --------- ----------
Earning Assets:
Interest-bearing deposits $ 83 121 $ (3) $ (35)
Federal funds sold 22 64 (23) (19)
Investment securities:
Taxable (565) 152 (683) (34)
Tax-exempt (1) (58) (7) (51) -
Loans (2)(3) (738) 1,367 (1,934) (171)
--------- --------- --------- ----------
Total interest income (1,256) 1,697 (2,694) (259)
--------- --------- --------- ----------
Interest-Bearing Liabilities:
Interest-bearing deposits
Demand deposits (263) 164 (376) (51)
Savings deposits (222) 39 (238) (23)
Time deposits (620) 410 (949) (81)
Securities sold under
agreements to repurchase (40) 53 (71) (22)
FHLB advances (110) (118) 9 (1)
Federal funds purchased (2) (2) (2) 2
Other debt 38 65 (15) (12)
--------- --------- --------- ----------
Total interest expense (1,219) 611 (1,642) (188)
--------- --------- --------- ----------
Net interest income $ (37) $1,086 $(1,052) $(71)
========= ========= ========= ==========
(1) Interest income and rates are presented on a tax-equivalent basis,
assuming a federal income tax rate of 34%.
(2) Loan fees are included in interest income and are not material.
(3) Nonaccrual loans are not material and have been included in the
average balances.
(4) The changes in rate/volume are computed on a consistent basis by
multiplying the change in rates with the change in volume.
On a tax equivalent basis, net interest income decreased $37,000, or
..3% to $13,431,000 for the six months ended June 30, 2003, from $13,468,000 for
the same period in 2002. The decrease in net interest income was primarily due
to the greater decline in loan interest rates compared to deposit rates, which
resulted in a compression of the interest margin.
For the six months ended June 30, 2003, average earning assets
increased by $68,472,000, or 10.6%, and average interest-bearing liabilities
increased $58,387,000, or 10.6%, compared with average balances for the same
period in 2002. Changes in average balances are shown below:
> Average loans increased by $38.4 million or 8.1% in 2003 as compared
to 2002.
> Average securities increased by $6.3 million or 3.9% in 2003 as
compared to 2002.
> Average interest-bearing deposits increased by $49.3 million or 10.3%
in 2003 as compared to 2002.
> Average securities sold under agreements to repurchase increased by
$9.9 million or 30.9% in 2003 as compared to 2002.
> Average borrowings and other debt decreased by $.6 million or 1.4% in
2003 as compared to 2002.
> Net interest margin has decreased to 3.77% in 2003 from 4.18% in 2002.
Provision for Loan Losses
The provision for loan losses for the six months ended June 30, 2003
was $500,000 compared to $275,000 for the same period in 2002. The increase in
the provision was a result of an increased risk in the loan portfolio, uncertain
economic conditions, and an increase in nonperforming loans from $2,145,000 as
of June 30, 2002 to $5,678,000 as of June 30, 2003. Net charge-offs were
$101,000 for the six months ended June 30, 2003 and $264,000 during the same
period in 2002. For information on loan loss experience and nonperforming loans,
see 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 and six months ended June 30, 2003 and 2002 (in thousands):
Three months ended Six months ended
June 30, June 30,
2003 2002 $ Change 2003 2002 $ Change
--------- ---------- --------- ---------- ---------- ----------
Trust $489 $450 $ 39 $945 $928 $ 17
Brokerage 67 76 (9) 124 134 (10)
Insurance commissions 367 363 4 778 554 224
Service charges 1,100 780 320 2,138 1,517 621
Security gains - 73 (73) 370 116 254
Mortgage banking 533 377 156 1,082 703 379
Other 559 357 202 1,108 847 261
--------- ---------- --------- ---------- ---------- ----------
Total other income $3,115 $2,476 $639 $6,545 $4,799 $1,746
========= ========== ========= ========== ========== ==========
Explanations for the three months ended June 30, 2003 as compared to
the same period in 2002:
< Trust revenues increased $39,000 or 8.7% to $489,000 from $450,000.
Trust assets, reported at market value, were $330 million at June 30,
2003 compared to $293 million at June 30, 2002. The increase in trust
revenues was the result of new business and an increase in equity
prices.
< Revenues from brokerage decreased $9,000 or 11.8% to $67,000 from
$76,000 as a result of a decrease in the number of stock transactions.
< Insurance commissions increased $4,000 or 1.1% to $367,000 from
$363,000. Increased sales of business property and casualty insurance
has increased revenues.
< Fees from service charges increased $320,000 or 41.0% to $1,100,000
from $780,000. This was primarily the result of increased overdraft
fees after implementation of a new program called Payment Privilege in
July 2002. Under Payment Privilege, overdrafts up to a limit of $500
are paid for qualifying customers in exchange for a fee. A greater
number of overdrafts paid has resulted in an increase in fee income.
< Mortgage banking income increased $156,000 or 41.4% to $533,000 from
$377,000. This increase was due to the volume of fixed rate loans
originated and sold by First Mid Bank. The increase in volume is
largely attributed to the decrease in mortgage lending rates. Loans
sold balances are as follows:
< $36.5 million (representing 390 loans) for the 2nd quarter of
2003.
< $17.0 million (representing 180 loans) for the 2nd quarter of
2002.
First Mid Bank generally releases the servicing rights on loans sold
into the secondary market. Accordingly, capitalized originated mortgage
servicing rights are not material to the consolidated financial statements.
< Other income increased $202,000 or 56.6% to $559,000 from $357,000.
This increase was primarily due to fees from ATM usage and placement
of additional ATMs late in 2002.
Explanations for the six months ended June 30, 2003 as compared to the
same period in 2002:
< Trust revenues increased $17,000 or 1.8% to $945,000 from $928,000.
Trust assets, reported at market value, were $330 million at June 30,
2003 compared to $293 million at June 30, 2002. The increase in trust
revenues was the result of new business and an increase in equity
prices.
< Revenues from brokerage decreased $10,000 or 7.5% to $124,000 from
$134,000 as a result of a decrease in the number of stock
transactions.
< Insurance commissions increased $224,000 or 40.4% to $778,000 from
$554,000. The increase is due to operating Checkley, which was
acquired January 29, 2002, for the entire period in 2003. In addition,
increased sales of business property and casualty insurance has
increased revenues.
< Fees from service charges increased $621,000 or 40.9% to $2,138,000
from $1,517,000. This was primarily the result of increased overdraft
fees after implementation of a new program called Payment Privilege in
July 2002. Under Payment Privilege, overdrafts up to a limit of $500
are paid for qualifying customers in exchange for a fee. A greater
number of overdrafts paid has resulted in an increase in fee income.
< Sales of investment securities resulted in a net gain of $370,000, as
compared to a net gain of $116,000 for the same quarter in 2002. The
net gain in 2003 resulted primarily from the sale of $14 million of
available-for-sale securities during the first quarter.
< Mortgage banking income increased $379,000 or 53.9% to $1,082,000 from
$703,000. This increase was due to the volume of fixed rate loans
originated and sold by First Mid Bank. The increase in volume is
largely attributed to the decrease in mortgage lending rates. Loans
sold balances are as follows:
< $75.4 million (representing 827 loans) for the 2nd quarter of
2003.
< $39.4 million (representing 435 loans) for the 2nd quarter of
2002.
First Mid Bank generally releases the servicing rights on loans sold
into the secondary market. Accordingly, capitalized originated mortgage
servicing rights are not material to the consolidated financial statements.
< Other income increased $261,000 or 30.8% to $1,108,000 from $847,000.
This increase was primarily due to fees from ATM usage and placement
of additional ATMs late in 2002.
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 and six months ended June 30, 2003 and
2002 (in thousands):
Three months ended Six months ended
June 30, June 30,
---------- ---------- ----------- --------- ---------- -----------
2003 2002 $ Change 2003 2002 $ Change
---------- ---------- ----------- --------- ---------- -----------
Salaries and benefits $ 3,415 $ 3,096 $ 319 $ 6,729 $ 6,102 $ 627
Occupancy and equipment 1,060 1,009 51 2,123 1,980 143
Amortization of intangibles 181 191 (10) 365 370 (5)
Stationery and supplies 143 123 20 287 278 9
Legal and professional fees 255 258 (3) 486 496 (10)
Marketing and promotion 190 150 40 322 309 13
Other operating expenses 1,036 1,187 (151) 2,034 2,110 (76)
---------- ---------- ----------- --------- ---------- -----------
Total other expense $ 6,280 $ 6,014 $ 266 $12,346 $11,645 $ 701
========== ========== =========== ========= ========== ===========
Explanations for the three months ended June 30, 2003 as compared to
the same period in 2002:
< Salaries and employee benefits, the largest component of other
expense, increased $319,000 or 10.3% to $3,415,000 from $3,096,000.
This increase can be explained by merit increases for continuing
employees and the addition of branches in Champaign and Maryville in
November 2002. There were 317 full-time equivalent employees at June
30, 2003 compared to 310 at June 30, 2002.
< Occupancy and equipment expense increased $51,000 or 5.1% to
$1,060,000 from $1,009,000. This increase included building
maintenance, utilities and rent expense for Champaign and Maryville
branches added in November 2002.
< Other operating expenses decreased $151,000 or 12.7% to $1,036,000 in
2003 from $1,187,000 in 2002. This decrease was primarily a result of
a write-off of an investment in a venture capital fund during the
second quarter of 2002. The Company has not had any write-downs on
investments during 2003.
< All other categories of operating expenses increased a net of $47,000
or 6.5% to $769,000 from $722,000. This increase was primarily the
result of a promotional mailing and open house for the Maryville
branch.
Explanations for the six months ended June 30, 2003 as compared to the
same period in 2002:
< Salaries and employee benefits increased $627,000 or 10.3% to
$6,729,000 from $6,102,000. This increase can be explained by merit
increases for continuing employees, an increase in the number of
employees due to the acquisition of Checkley in January 2002 and the
addition of branches in Champaign and Maryville in November 2002.
There were 317 full-time equivalent employees at June 30, 2003
compared to 310 at June 30, 2002.
< Occupancy and equipment expense increased $143,000 or 7.2% to
$2,123,000 from $1,980,000. This increase included building
maintenance, utilities and rent expense for Checkley, and Champaign
and Maryville branches added in November 2002.
< Other operating expenses decreased $76,000 or 3.6% to $2,034,000 in
2003 from $2,110,000 in 2002. This increase was primarily a result of
a write-off of an investment in a venture capital fund during the
second quarter of 2002. The Company has not had any write-downs on
investments during 2003.
< All other categories of operating expenses increased a net of $7,000
or .5% to $1,460,000 from $1,453,000.
Income Taxes
Total income tax expense amounted to $1,088,000 (33.9% effective tax
rate) for the three months ended June 30, 2003, compared to $1,041,000 (33.7%
effective tax rate) for the same period in 2002. For the six months ended June
30, 2003, total income tax expense amounted to $2,320,000 (34.1% effective tax
rate) compared to $1,986,000 (33.1% effective tax rate) for the same period in
2002. The increase in the effective tax rate in 2003 compared to 2002 is due to
an increase in non-deductible loan interest income and a decrease in deductible
interest income from U.S. Treasury securities, resulting in a larger amount of
non-deductible interest income and greater state income tax expense.
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 June 30, 2003 and December 31, 2002 (in thousands):
June 30, December 31,
2003 2002
-------------- -------------
Real estate - residential $112,555 $116,588
Real estate - agricultural 49,315 47,210
Real estate - commercial 203,308 176,235
-------------- -------------
Total real estate - mortgage $365,178 $340,033
Commercial and agricultural 127,231 127,065
Installment 29,469 31,119
Other 1,380 1,647
-------------- -------------
Total loans $523,258 $499,864
============== =============
Overall loans increased $23 million, or 4.7%. The largest component of
this increase was commercial real estate loans, which increased $27 million, or
15.4%. 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 $6,490,000 and $7,070,000 as of June 30, 2003 and December 31,
2002, respectively.
At June 30, 2003, the Company had loan concentrations in agricultural
industries of $88.3 million, or 16.9%, of outstanding loans and $90.7 million,
or 18.1%, at December 31, 2002. In addition, the Company has a loan
concentration to "operators of non-residential buildings" of $18.1 million or
3.5% of outstanding loans at June 30, 2003, and $12.5 or 2.5% of outstanding
loans at December 31, 2002 and to "motels, hotels and tourist courts" of $17.8
million or 3.4% of outstanding loans at June 30, 2003, and $13.6 million or 2.7%
of outstanding loans at December 31, 2002. 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
June 30, 2003, by maturities (dollars in thousands):
Maturity (1)
-----------------------------------------------------------
Over 1
One year through Over
or less (2) 5 years 5 years Total
-------------- -------------- -------------- --------------
Real estate - residential $ 55,462 $ 53,075 $4,018 $112,555
Real estate - agricultural 7,604 36,156 5,555 49,315
Real estate - commercial 52,023 122,141 29,144 203,308
-------------- -------------- -------------- --------------
Total real estate - mortgage $115,089 $211,372 $ 38,717 $365,178
Commercial and agricultural 90,401 35,088 1,742 127,231
Installment 16,056 13,366 47 29,469
Other 455 527 398 1,380
-------------- -------------- -------------- --------------
Total loans $222,001 $260,353 $ 40,904 $523,258
============== ============== ============== ==============
(1) Based on scheduled principal repayments.
(2) Includes demand loans, past due loans and overdrafts.
As of June 30, 2003, loans with maturities over one year consisted of
approximately $211,950,000 in fixed rate loans and $89,307,000 in variable rate
loans. The loan maturities noted above are based on the contractual provisions
of the individual loans. Rollovers and borrower requests are handled on a
case-by-case basis.
Nonperforming Loans
Nonperforming loans 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 June 30, 2003 and December 31, 2002 (in
thousands):
June 30, December 31,
2003 2002
------------- --------------
Nonaccrual loans $5,627 $2,961
Renegotiated loans which are performing
in accordance with revised terms 51 188
------------- --------------
Total nonperforming Loans $5,678 $3,149
============= ==============
At June 30, 2003, approximately $2,963,000 of the nonperforming loans
resulted from collateral-dependent loans to three borrowers. The $2,666,000
increase in nonaccrual loans during the six months ended June 30, 2003, resulted
from the net of $4,168,000 of loans put on nonaccrual status, $1,407,000 of
loans brought current or paid-off and $95,000 of loans transferred to other real
estate owned. The increase in nonaccrual loans was primarily due to two
agricultural loans that are secured by real estate.
Interest income that would have been reported if nonaccrual and
renegotiated loans had been performing totaled $138,000 for the six months ended
June 30, 2003 and $158,000 for the year ended December 31, 2002.
Loan Quality and Allowance for Loan Losses
The allowance for loan losses represents management's best estimate of
the reserve necessary to adequately cover probable losses in the loan portfolio.
The provision for loan losses is the charge against current earnings that is
determined by management as the amount needed to maintain an allowance for loan
losses that is adequate but not excessive. 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 who might be
facing financial difficulty. Once identified, the magnitude of exposure to
individual borrowers is quantified in the form of specific allocations of the
allowance for loan losses. Management considers collateral values in the
determination of such specific allocations. Additional factors considered by
management in evaluating the overall adequacy of the allowance include
historical net loan losses, the level and composition of nonaccrual, past due
and renegotiated loans and the current economic conditions in the region where
the Company operates. Management 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 June 30, 2003 the Company's loan portfolio
included $88.3 million of loans to borrowers whose businesses are directly
related to agriculture. The balance decreased by $2.4 million from $90.7 million
at December 31, 2002. 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.
Analysis of the allowance for loan losses as of June 30, 2003 and 2002,
and of changes in the allowance for the three and six month periods ended June
30, 2003 and 2002, was as follows (dollars in thousands):
Three months ended Six months ended
June 30, June 30,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Average loans outstanding,
net of unearned income $519,315 $475,127 $510,092 $471,736
Allowance-beginning of period $ 3,841 $ 3,751 $ 3,723 $ 3,702
Charge-offs:
Real estate-mortgage 13 111 25 142
Commercial, financial & agricultural 339 33 453 58
Installment 22 55 48 88
---------- ---------- ---------- ----------
Total charge-offs 374 199 526 288
Recoveries:
Real estate-mortgage (Y) (Y) (Y) (Y)
Commercial, financial & agricultural 388 1 399 2
Installment 17 10 26 22
---------- ---------- ---------- ----------
Total recoveries 405 11 425 24
---------- ---------- ---------- ----------
Net charge-offs (recoveries) (31) 188 101 264
Provision for loan losses 250 150 500 275
---------- ---------- ---------- ----------
Allowance-end of period $ 4,122 $ 3,713 $ 4,122 $ 3,713
========== ========== ========== ==========
Ratio of annualized net charge offs
to average loans (.02%) .16% .04% .22%
========== ========== ========== ==========
Ratio of allowance for loan losses to
loans outstanding (less unearned
interest at end of period) .79% .77% .79% .77%
========== ========== ========== ==========
Ratio of allowance for loan losses
to nonperforming loans 72.6% 173.3% 72.6% 173.3%
========== ========== ========== ==========
During the second quarter of 2003, the Company received a recovery of
$382,000 on two commercial real estate loans of a single borrower. The Company
also had charge-offs of $170,000 on a commercial building loan and $80,000 on an
agricultural operating loan secured by crops and real estate.
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. The board of directors and management review the status of problem loans
and determine the adequacy 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 June 30, 2003 and December 31,
2002 (in thousands):
June 30, December 31,
2003 2002
----------------------------- ---------------------------
Weighted Weighted
Average Average
Amount Yield Amount Yield
-------------- -------------- ------------- -------------
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 99,248 3.26% $ 76,342 3.80%
Obligations of states and
political subdivisions 26,880 4.63% 27,597 4.63%
Mortgage-backed securities 29,293 3.49% 44,697 3.72%
Other securities 15,931 5.71% 15,807 5.86%
-------------- -------------- ------------- -------------
Total securities $171,352 3.74% $164,443 4.12%
============== ============== ============= =============
At June 30, 2003, the Company's investment portfolio showed an 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. The
amortized cost, gross unrealized gains and losses and estimated fair values for
available-for-sale and held-to-maturity securities by major security type at
June 30, 2003 and December 31, 2002 were as follows (in thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- --------------- --------------- --------------
June 30, 2003
Available-for-sale:
U.S. Treasury securities and obligations
of U.S. government corporations & agencies $ 99,248 $1,756 $ - $101,004
Obligations of states and political
subdivisions 25,083 1,750 - 26,833
Mortgage-backed securities 29,293 392 (158) 29,527
Federal Home Loan Bank stock 3,410 - - 3,410
Other securities 12,521 451 (3) 12,969
--------------- --------------- --------------- --------------
Total available-for-sale $169,555 $ 4,349 $ (161) $173,743
=============== =============== =============== ==============
Held-to-maturity:
Obligations of states and political
subdivisions $ 1,797 $ 26 $ (2) $ 1,821
=============== =============== =============== ==============
December 31, 2002
Available-for-sale:
U.S. Treasury securities and obligations
of U.S. government corporations & agencies $ 76,342 $ 1,665 $(30) $ 77,977
Obligations of states and political
subdivisions 25,695 1,232 - 26,927
Mortgage-backed securities 44,697 749 (4) 45,442
Federal Home Loan Bank stock 3,266 - - 3,266
Other securities 12,541 293 (31) 12,803
--------------- --------------- --------------- --------------
Total available-for-sale $162,541 $ 3,939 $(65) $166,415
=============== =============== =============== ==============
Held-to-maturity:
Obligations of states and political
subdivisions $ 1,902 $ 27 $ (2) $ 1,927
=============== =============== =============== ==============
The following table indicates the expected maturities of investment
securities classified as available-for-sale and held-to-maturity, presented at
amortized cost, at June 30, 2003 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.
One After 1 After 5 After
year through through ten
(In thousands) or less 5 years 10 years years Total
------------------------------------------------------------------------
Available-for-sale:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $26,272 $ 57,004 $11,000 $ 4,972 $ 99,248
Obligations of state and
political subdivisions - 7,729 10,464 6,890 25,083
Mortgage-backed securities 5,682 23,611 - - 29,293
Federal Home Loan Bank stock - - - 3,410 3,410
Other securities - - - 12,521 12,521
------------------------------------------------------------------------
Total investments $31,954 $88,344 $21,464 $27,793 $169,555
========================================================================
Weighted average yield 3.18% 3.45% 3.93% 5.05% 3.72%
Full tax-equivalent yield 3.18% 3.62% 4.89% 5.59% 4.02%
========================================================================
Held-to-maturity:
Obligations of state and
political subdivisions $ 230 $ 610 $ 400 $ 557 $ 1,797
========================================================================
Weighted average yield 5.50% 5.34% 5.61% 5.40% 5.44%
Full tax-equivalent yield 7.98% 7.74% 8.14% 7.80% 7.88%
========================================================================
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 June 30,
2003.
Investment securities carried at approximately $133,253,000 and
$141,462,000 at June 30, 2003 and December 31, 2002, 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 six months ended June 30, 2003 and
for the year ended December 31, 2002 (dollars in thousands):
June 30, December 31,
2003 2002
--------------------- ----------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
----------- --------- ----------- ----------
Demand deposits:
Non-interest-bearing $ 81,966 - $ 79,082 -
Interest-bearing 216,676 .99% 200,653 1.33%
Savings 55,021 .66% 51,634 1.55%
Time deposits 255,133 3.15% 242,301 3.63%
----------- --------- ----------- ----------
Total average deposits $608,796 1.73% $573,670 2.14%
=========== ========= =========== ==========
The following table sets forth the maturity of time deposits of
$100,000 or more at June 30, 2003 and December 31, 2002 (in thousands):
June 30, December 31,
2003 2002
-------------- ---------------
3 months or less $ 20,248 $ 29,085
Over 3 through 6 months 8,483 18,926
Over 6 through 12 months 14,583 13,715
Over 12 months 32,107 32,225
-------------- ---------------
Total $ 75,421 $ 93,951
============== ===============
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, and loans (short-term or long-term debt) that the Company has
outstanding.
Information relating to securities sold under agreements to repurchase
and other borrowings as of June 30, 2003 and December 31, 2002 is presented
below (in thousands):
June 30, December 31,
2003 2002
--------------- ---------------
Securities sold under agreements to repurchase $38,303 $44,184
Federal Home Loan Bank advances:
Fixed term - due in one year or less 5,000 5,000
Fixed term - due after one year 25,300 30,300
Debt:
Loans due in one year or less 9,025 8,525
Loans due after one year 600 800
--------------- ---------------
Total $78,228 $88,809
=============== ===============
Average interest rate at end of period 2.62% 2.53%
Maximum outstanding at any month-end
Securities sold under agreements to repurchase $45,099 $44,588
Federal Home Loan Bank advances:
Overnight - 400
Fixed term - due in one year or less 5,000 8,000
Fixed term - due after one year 30,300 30,300
Federal funds purchased - 3,250
Debt:
Loans due in one year or less 9,025 9,525
Loans due after one year 600 800
--------------- ---------------
Total $90,024 $96,863
=============== ===============
Averages for the period (YTD)
Securities sold under agreements to repurchase $41,954 $34,389
Federal Home Loan Bank advances:
Overnight - 521
Fixed term - due in one year or less 5,000 6,153
Fixed term - due after one year 26,902 30,300
Federal funds purchased 28 299
Debt:
Loans due in one year or less 8,561 5,350
Loans due after one year 630 738
--------------- ---------------
Total $83,075 $77,750
=============== ===============
Average interest rate during the period 2.46% 3.10%
FHLB advances represent borrowings by First Mid Bank to economically
fund loan demand. The fixed term advances consist of $30.3 million as follows:
< $5 million advance at 3.45% with a 2-year maturity, due 02/28/04
< $5 million advance at 6.16% with a 5-year maturity, due 03/20/05
< $2.3 million advance at 6.10% with a 5-year maturity, due 04/07/05
< $5 million advance at 6.12% with a 5-year maturity, due 09/06/05
< $5 million advance at 5.34% with a 5-year maturity, due 12/14/05
< $3 million advance at 5.98% with a 10-year maturity, due 03/01/11
< $5 million advance at 4.33% with a 10-year maturity, due 11/23/11
Other debt, both short-term and long-term, represents the outstanding
loan balances for the Company. At June 30, 2003, outstanding loan balances
include $8,825,000 on a revolving credit agreement with The Northern Trust
Company with a floating interest rate of 1.25% over the Federal funds rate
(2.35% as of June 30, 2003) and that is set to mature on October 24, 2003. The
loan has a maximum available balance of $15 million. The loan is secured by all
of the common stock of First Mid Bank. The credit agreement contains
requirements for the Company and First Mid Bank to maintain various operating
and capital ratios and also contains requirements for prior lending 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 June 30, 2003 and at December 31,
2002. Management expects to renew this loan with similar terms and conditions.
The balance also includes a $800,000 balance 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 (4.00% as of June 30, 2003) and principal payable annually over five
years, with a final maturity of January 2007.
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 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
gaps for selected maturity periods at June 30, 2003 (in thousands):
Number of Months Until Next Repricing Opportunity
Interest-earning assets: 0-1 1-3 3-6 6-12 12+
----------- ----------- ------------ ----------- -----------
Federal funds sold $ 7,637 $ - $ - $ - $ -
Taxable investment securities 20,792 19,497 421 60,619 45,582
Nontaxable investment securities - 105 601 1,886 26,037
Loans 155,517 30,062 34,373 68,125 235,181
----------- ----------- ------------ ----------- -----------
Total $ 183,946 $ 49,664 $35,395 $130,630 $306,800
----------- ----------- ------------ ----------- -----------
Interest-bearing liabilities:
Savings and N.O.W. accounts 46,096 1,173 3,976 3,475 148,090
Money market accounts 48,803 494 741 1,404 24,276
Other time deposits 23,969 29,829 33,070 47,434 107,786
Short-term borrowings/debt 38,303 - - 5,000 -
Long-term borrowings/debt - - - - 25,300
----------- ----------- ------------ ----------- -----------
Total $ 157,171 $ 31,496 $ 37,787 $ 57,313 $305,452
=========== =========== ============ =========== ===========
Periodic GAP $26,775 $ 18,168 $(2,392) $ 73,317 $1,348
=========== =========== ============ =========== ===========
Cumulative GAP $26,775 $ 44,943 $ 42,551 $115,868 $117,216
=========== =========== ============ =========== ===========
GAP as a % of interest-earning assets:
Periodic 3.8% 2.6% (.3)% 10.4% .2%
Cumulative 3.8% 6.4% 6.0% 16.4% 16.6%
The static GAP analysis shows that at June 30, 2003, 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, static GAP analysis being one. The Company's asset
liability management committee (ALCO) also uses other financial models to
project interest income under various rate scenarios and prepayment/extension
assumptions consistent with the 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 June 30, 2003, the Company's stockholders' equity had increased
$3,186,000 or 4.8% to $69,993,000 from $66,807,000 as of December 31, 2002.
During the first six months of 2003, net income contributed $4,484,000 to equity
before the payment of dividends to common stockholders. The change in market
value of available-for-sale investment securities increased stockholders' equity
by $193,000, net of tax. Additional purchases of treasury stock (70,051 shares
at an average cost of $29.62 per share) decreased stockholders' equity by
$2,075,000.
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. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary action by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements.
Quantitative measures established by each regulatory agency to ensure
capital adequacy require the reporting institutions to maintain a minimum total
risk-based capital ratio of 8% and a minimum leverage ratio of 3% for the most
highly rated banks that do not expect significant growth. All other institutions
are required to maintain a minimum leverage ratio of 4%. Management believes
that, as of June 30, 2003 and December 31, 2002, the Company and First Mid Bank
have met all capital adequacy requirements.
As of June 30, 2003, the most recent notification from the primary
regulator 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 table. 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
----------- ---------- ---------- --------- ---------- ----------
June 30, 2003
Total Capital (to risk-weighted assets)
Company $58,269 10.82% $43,090 > 8.00% N/A N/A
-
First Mid Bank 62,814 11.76% 42,744 > 8.00% $53,431 >10.00%
- -
Tier 1 Capital (to risk-weighted assets)
Company 54,147 10.05% 21,544 > 4.00% N/A N/A
-
First Mid Bank 58,692 10.98% 21,373 > 4.00% 32,059 > 6.00%
- -
Tier 1 Capital (to average assets)
Company 54,147 7.19% 30,136 > 4.00% N/A N/A
-
First Mid Bank 58,692 7.81% 30,060 > 4.00% 37,575 > 5.00%
- -
December 31, 2002
Total Capital (to risk-weighted assets)
Company $54,380 10.35% $42,051 > 8.00% N/A N/A
-
First Mid Bank 59,476 11.42% 41,653 > 8.00% $52,067 >10.00%
- -
Tier 1 Capital (to risk-weighted assets)
Company 50,657 9.64% 21,026 > 4.00% N/A N/A
-
First Mid Bank 55,753 10.71% 20,827 > 4.00% 31,240 > 6.00%
- -
Tier 1 Capital (to average assets)
Company 50,657 6.62% 30,630 > 4.00% N/A N/A
-
First Mid Bank 55,753 7.39% 30,158 > 4.00% 37,698 > 5.00%
- -
Banks and financial holding companies and bank 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 2002 Annual Report
on Form 10-K.
On August 5, 1998, the Company announced a stock repurchase program of
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. In August 2002, the Board approved the repurchase of $5 million of
additional shares of the Company's common stock, bringing the aggregate total to
8% of the Company's common stock plus $8 million of additional shares. During
the six-month period ending June 30, 2003, the Company repurchased 70,051 shares
at a total price of $2,075,000. Since 1998, the Company has repurchased a total
of 481,613 shares at a total price of $12,377,000. As of June 30, 2003, the
Company was authorized per all repurchase programs to purchase $1,829,000 in
additional shares. Treasury stock is further affected by activity in the
Deferred Compensation Plan.
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 for 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 the First Mid Bank's meeting minimum
regulatory capital requirements for Total Capital to Risk-Weighted
Assets and Tier 1 Capital to Total Assets. As of June 30, 2003, the
First Mid Bank's ratios of Total Capital to Risk-Weighted Assets of
11.76% and Tier 1 Capital to Total Assets of 7.81% 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 June 30, 2003, the excess collateral at the
Federal Home Loan Bank will support approximately $25 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 $8,825,000 as of June 30, 2003, and
$6,175,000 in available funds. The credit agreement matures on October
24, 2003. The agreement contains requirements for the Company and
First Mid Bank to maintain various operating and capital ratios and
also 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 June 30, 2003.
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 June 30, 2003 (in thousands):
Less than More than
Total 1 year 1-3 years 3-5 years 5 years
---------- ----------- ----------- ----------- -----------
Time deposits $245,964 $138,031 $67,999 $39,470 $464
Debt 9,625 9,025 400 200 -
Other borrowings 68,603 43,303 17,300 5,000 3,000
Operating leases 2,462 300 519 399 1,244
---------- ----------- ----------- ----------- -----------
$326,654 $190,659 $86,218 $45,069 $4,708
========== =========== =========== =========== ===========
For the six-month period ended June 30, 2003, net cash of $7.5 million
was provided from operating activities while investing activities used net cash
of $31.5 million and financing activities used net cash of $18.2 million. Thus,
cash and cash equivalents decreased by $42.2 million since year-end 2002.
Generally, during 2003, decreases in deposits and customer repurchase agreements
due to seasonal outflow and funds used to fund new loans reduced cash balances.
Management believes that it has adequate sources of liquidity to meet
its contractual obligations as well as to provide for contingencies that might
reasonably be expected to occur.
First Mid 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, and 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 June 30, 2003 and December 31, 2002 were as follows (in
thousands):
June 30, December 31,
2003 2002
-------------- --------------
Unused commitments including lines of credit:
Commercial real estate $ 38,670 $31,506
Commercial operating 31,488 31,160
Home equity 11,711 9,509
Other 14,589 13,753
-------------- --------------
Total $ 96,458 $85,928
============== ==============
Standby letters of credit $2,380 $997
============== ==============
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, 2002. 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, 2002.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures. The Company's Chief Executive
Officer and Chief Financial Officer have 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.
Changes in Internal Control Over Financial Reporting. There have been
no changes in the Company's internal control over financial reporting identified
in connection with the evaluation required by Rules 13a-15(d) or 15d-15(d) of
the Exchange Act that occurred during the quarter covered by this report that
have materially affected, or are reasonably likely to materially affect, 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. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on May 28, 2003. At the
meeting, Richard A. Lumpkin, Sara Jane Preston and William S. Rowland were
elected to serve as Class II directors with terms expiring in 2006. Continuing
Class III directors (terms expiring 2004) are Charles A. Adams, Daniel E.
Marvin, Jr. and Ray Anthony Sparks and continuing Class I directors (terms
expiring 2005) are Kenneth R. Diepholz, Gary W. Melvin and Steven L. Grissom.
There were 3,162,383 issued and outstanding shares of common stock at the
time of the Annual Meeting. The voting at the meeting, on the matter listed
above, was as follows:
Election of Directors For Withheld
- --------------------- --- --------
Richard A. Lumpkin 2,911,037 19,029
Sara Jane Preston 2,896,477 33,589
William S. Rowland 2,913,604 16,462
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
The exhibits required by Item 601 of Regulation S-K and filed herewith are
listed in the Exhibit Index that follows the Signature Page and that immediately
precedes the exhibits filed.
(b) Reports on Form 8-K:
The Company filed Form 8-K on April 24, 2003 regarding the Company's
financial statements as of March 31, 2003.
The Company filed Form 8-K on July 23, 2003 regarding the Company's
financial statements as of June 30, 2003.
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)
/s/ William S. Rowland /s/ Michael L. Taylor
- ----------------------------------- -----------------------------------
William S. Rowland Michael L. Taylor
President and Chief Executive Officer Chief Financial Officer
Date: August 13, 2003 Date: August 13, 2003
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 7)
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
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)) for the registrant and we 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) 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
c) 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 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: August 13, 2003
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)) for the registrant and we 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) 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
c) 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 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: August 13, 2003
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 ending June 30,
2003 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), we, William S. Rowland, as President and Chief Executive Officer
of the Company, and Michael L. Taylor, as 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: August 13, 2003
/s/ William S. Rowland
William S. Rowland
President and Chief Executive Officer
/s/ Michael L. Taylor
Michael L. Taylor
Chief Financial Officer