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 September 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 November 13, 2003, 3,139,017 common shares, $4.00 par value, were
outstanding.
PART I
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets (unaudited) September 30, December 31,
(In thousands, except share data) 2003 2002
--------------- ---------------
Assets
Cash and due from banks:
Non-interest bearing $ 23,887 $ 22,437
Interest bearing 2,900 19,995
Federal funds sold 12,850 27,225
--------------- ---------------
Cash and cash equivalents 39,637 69,657
Investment securities:
Available-for-sale, at fair value 167,055 166,415
Held-to-maturity, at amortized cost (estimated fair
value of $1,714 and $1,927 at September 30, 2003
and December 31, 2002, respectively) 1,692 1,902
Loans 539,743 499,864
Less allowance for loan losses (4,269) (3,723)
--------------- ---------------
Net loans 535,474 496,141
Premises and equipment, net 16,307 16,916
Accrued interest receivable 5,749 6,362
Goodwill, net 9,034 9,034
Intangible assets, net 4,166 4,743
Other assets 4,744 5,070
--------------- ---------------
Total assets $783,858 $ 776,240
=============== ===============
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing $ 90,545 $ 84,025
Interest bearing 524,234 529,427
--------------- ---------------
Total deposits 614,779 613,452
Accrued interest payable 1,289 1,793
Securities sold under agreements to repurchase 53,333 44,184
Other borrowings 39,925 44,625
Other liabilities 4,231 5,379
--------------- ---------------
Total liabilities 713,557 709,433
--------------- ---------------
Stockholders' equity:
Common stock, $4 par value; authorized 6,000,000
shares; issued 3,663,610 shares in 2003 and
3,603,737 shares in 2002 14,655 14,415
Additional paid-in capital 15,790 14,450
Retained earnings 51,982 45,896
Deferred compensation 1,833 1,589
Accumulated other comprehensive income 1,667 2,373
Less treasury stock at cost, 517,981 shares
in 2003 and 414,562 shares in 2002 (15,626) (11,916)
--------------- ---------------
Total stockholders' equity 70,301 66,807
--------------- ---------------
Total liabilities and stockholders' equity $783,858 $776,240
=============== ===============
See accompanying notes to unaudited consolidated financial statements.
Consolidated Statements of Income (unaudited) Three months ended Nine months ended
(In thousands, except per share data) September 30, September 30,
2003 2002 2003 2002
------------ ------------ ------------- -------------
Interest income:
Interest and fees on loans $ 8,162 $ 8,496 $24,245 $25,317
Interest on investment securities 1,474 1,800 4,649 5,578
Interest on federal funds sold 25 43 122 118
Interest on deposits with
other financial institutions 6 45 100 56
------------ ------------ ------------- -------------
Total interest income 9,667 10,384 29,116 31,069
------------ ------------ ------------- -------------
Interest expense:
Interest on deposits 2,280 2,881 7,549 9,255
Interest on securities sold under agreements
to repurchase 61 85 193 257
Interest on Federal Home Loan Bank advances 406 489 1,226 1,419
Interest on federal funds purchased - 4 - 6
Interest on debt 60 46 183 131
------------ ------------ ------------- -------------
Total interest expense 2,807 3,505 9,151 11,068
------------ ------------ ------------- -------------
Net interest income 6,860 6,879 19,965 20,001
------------ ------------ ------------- -------------
Provision for loan losses 250 500 750 775
------------ ------------ ------------- -------------
Net interest income after provision for loan losses 6,610 6,379 19,215 19,226
------------ ------------ ------------- -------------
Other income:
Trust revenues 499 470 1,444 1,398
Brokerage commissions 85 61 209 195
Insurance commissions 363 347 1,141 901
Service charges 1,165 1,092 3,303 2,609
Securities gains, net - 107 370 223
Mortgage banking revenue 673 351 1,755 1,054
Other 583 500 1,691 1,347
------------ ------------ ------------- -------------
Total other income 3,368 2,928 9,913 7,727
------------ ------------ ------------- -------------
Other expense:
Salaries and employee benefits 3,468 3,242 10,197 9,344
Net occupancy and equipment expense 1,079 1,043 3,202 3,023
Amortization of other intangible assets 212 187 577 557
Stationery and supplies 148 174 435 452
Legal and professional 217 230 703 726
Marketing and promotion 142 140 464 449
Other 1,062 1,244 3,096 3,354
------------ ------------ ------------- -------------
Total other expense 6,328 6,260 18,674 17,905
------------ ------------ ------------- -------------
Income before income taxes 3,650 3,047 10,454 9,048
Income taxes 1,257 1,016 3,577 3,002
------------ ------------ ------------- -------------
Net income $ 2,393 $ 2,031 $ 6,877 $ 6,046
============ ============ ============= =============
Per share data:
Basic earnings per share $.76 $.59 $ 2.17 $ 1.78
Diluted earnings per share $.74 $.59 $ 2.14 $ 1.77
============ ============ ============= =============
See accompanying notes to unaudited consolidated financial statements.
Consolidated Statements of Cash Flows (unaudited) Nine months ended
(In thousands) September 30,
2003 2002
--------------- ---------------
Cash flows from operating activities:
Net income $ 6,877 $ 6,046
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 750 775
Depreciation, amortization and accretion, net 2,362 2,147
Gain on sale of securities, net (370) (223)
Loss on sale of other real property owned, net 30 16
Gain on sale of mortgage loans held for sale, net (1,680) (840)
Origination of mortgage loans held for sale (119,338) (62,924)
Proceeds from sale of mortgage loans held for sale 126,742 65,639
Decrease in other investments - 250
(Increase) decrease in other assets 909 (2,945)
Increase (decrease) in other liabilities (354) 2,628
--------------- ---------------
Net cash provided by operating activities 15,928 10,569
--------------- ---------------
Cash flows from investing activities:
Capitalization of mortgage servicing rights (1) (5)
Purchases of premises and equipment (830) (1,128)
Net increase in loans (45,807) (29,452)
Proceeds from sales of securities available-for-sale 13,815 12,091
Proceeds from maturities of:
Securities available-for-sale 112,989 26,202
Securities held-to-maturity 210 301
Purchases of securities available-for-sale (128,364) (25,349)
Purchases of securities held-to-maturity (199) (123)
Net cash provided by acquisition - 15
--------------- ---------------
Net cash used in investing activities (48,187) (17,448)
--------------- ---------------
Cash flows from financing activities:
Net increase in deposits 1,327 51,408
Increase (decrease) in repurchase agreements 9,149 (3,695)
Repayment of short-term FHLB advances (5,000) -
Proceeds from long-term FHLB advances - 5,000
Proceeds from other borrowings - 200
Proceeds from short-term debt 500 -
Repayment of short-term debt (200) -
Proceeds from issuance of common stock 707 432
Purchase of treasury stock (3,466) (859)
Dividends paid on common stock (778) (674)
--------------- ---------------
Net cash provided by in financing activities 2,239 51,812
--------------- ---------------
Increase (decrease) in cash and cash equivalents (30,020) 44,933
Cash and cash equivalents at beginning of period 69,657 33,096
--------------- ---------------
Cash and cash equivalents at end of period $39,637 $78,029
=============== ===============
Additional disclosures of cash flow information:
Cash paid during the period for:
Interest $ 9,655 $ 8,165
Income taxes 3,408 3,109
Loans transferred to real estate owned 445 1,049
Dividends reinvested in common stock 873 913
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 September 30, 2003, and
2002, and all such adjustments are of a normal recurring nature. The results of
the interim period ended September 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 must be applied to an interest held in a variable interest
entity or potential variable interest entity at the end of the first interim
period after December 31, 2003. The Company does not expect the provisions of
FIN 46 to have a material impact on the Company's 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. The adoption did not 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 December
15, 2003. The Company does not expect the provisions of SFAS 150 to 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 nine-month periods
ended September 30, 2003 and 2002 was as follows (in thousands):
Three months ended Nine months ended
September 30, September 30,
(In thousands) 2003 2002 2003 2002
------------ ------------ ------------ -------------
Net income $2,393 $2,031 $6,877 $6,046
Other comprehensive income:
Unrealized gain (loss) during the period (1,474) 1,169 (788) 3,318
Less realized gain during the period - (107) (370) (223)
Tax effect 574 (411) 451 (1,199)
------------ ------------ ------------ -------------
Comprehensive income $1,493 $2,682 $6,170 $7,942
============ ============ ============ =============
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
nine-month periods ended September 30, 2003 and 2002 were as follows:
Three months ended Nine months ended
September 30, September 30,
------------------------------ ------------------------------
2003 2002 2003 2002
--------------- -------------- -------------- ---------------
Basic Earnings per Share:
Net income $2,393,000 $2,031,000 $6,877,000 $6,046,000
Weighted average common shares outstanding 3,159,140 3,398,110 3,169,167 3,389,586
=============== ============== ============== ===============
Basic earnings per common share $ .76 $ .59 $ 2.17 $ 1.78
=============== ============== ============== ===============
Diluted Earnings per Share:
Weighted average common shares outstanding 3,159,140 3,398,110 3,169,167 3,389,586
Assumed conversion of stock options 71,121 25,999 50,414 23,324
--------------- -------------- -------------- ---------------
Diluted weighted average common
shares outstanding 3,230,261 3,424,109 3,219,581 3,412,910
=============== ============== ============== ===============
Diluted earnings per common share $ .74 $ .59 $ 2.14 $ 1.77
=============== ============== ============== ===============
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 September 30, 2003 and
December 31, 2002 (in thousands):
September 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 1,307 3,015 1,157
Core deposit intangibles 2,805 2,021 2,805 1,807
Mortgage servicing rights 608 521 608 451
Customer list intangibles 1,904 317 1,904 174
------------- -------------------- -------------- ------------------
$21,126 $7,926 $21,126 $7,349
============= ==================== ============== ==================
Total amortization expense for the periods ended September 30, 2003 and
2002 was as follows (in thousands):
2003 2002
----------------- -----------------
Intangibles from branch acquisition $150 $151
Core deposit intangibles 214 228
Mortgage servicing rights 70 51
Customer list intangibles 143 127
----------------- -----------------
$577 $557
================= =================
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 9/30/03 $577
Estimated amortization expense:
For period 10/1/03-12/31/03 $177
For period ended 12/31/04 $623
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, 2003, and determined, as
of that date, goodwill was not impaired. Management also concluded that the
remaining amounts and amortization periods were appropriate for all intangible
assets. The next testing of goodwill for impairment will be as of September 30,
2004.
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.
Three months ended Nine months ended
September 30, September 30,
2003 2002 2003 2002
--------------- ------------- ------------- -------------
Net income, as reported $2,393 $2,031 $6,877 $6,046
Stock based compensation expense determined
under fair value based method, net of
related tax effect (33) (26) (101) (80)
--------------- ------------- ------------- -------------
Pro forma net income $2,360 $2,005 $6,776 $5,966
=============== ============= ============= =============
Basic Earnings Per Share:
As reported $.76 $.59 $ 2.17 $ 1.78
Pro forma .75 .59 2.14 1.76
Diluted Earnings Per Share:
As reported $.74 $.59 $ 2.14 $ 1.77
Pro forma .73 .59 2.11 1.75
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, September
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 September 30, 2003 was $2,393,000
($.74 diluted EPS), an increase of $362,000 from $2,031,000 ($.59 diluted EPS)
for the same period in 2002. Net income for the nine months ended September 30,
2003 was $6,877,000 ($2.14 diluted EPS), an increase of $831,000 from $6,046,000
($1.77 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 Nine months
(In thousands) ended September 30 ended September 30
-------------------- -------------------
Net interest income after provision for loan losses $ 231 $ (11)
Other income, including securities transactions 440 2,186
Other expenses (68) (769)
Income taxes (241) (575)
-------------------- -------------------
Increase in net income $ 362 $ 831
==================== ===================
The following table shows the Company's annualized performance ratios for
the nine months ended September 30, 2003 and 2002, as compared to the
performance ratios for the year ended December 31, 2002:
Nine months ended Year ended
September 30, September 30, December 31,
2003 2002 2002
-------------- -------------- ---------------
Return on average assets 1.19% 1.14% 1.11%
Return on average equity 13.33% 11.88% 11.82%
Average equity to average assets 8.93% 9.56% 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):
Nine months ended Nine months ended
September 30, 2003 September 30, 2002
------------------------------------------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------------------------------------------------------------------------
ASSETS
Interest-bearing deposits $ 12,404 $ 100 1.07% $4,674 $ 57 1.63%
Federal funds sold 15,383 122 1.06% 9,838 117 1.59%
Investment securities
Taxable 139,896 3,705 3.53% 131,452 4,587 4.65%
Tax-exempt (1) 28,583 1,436 6.70% 28,928 1,502 6.92%
Loans (2)(3) 519,509 24,245 6.22% 479,062 25,317 7.05%
------------------------------------------------------------------------
Total earning assets 715,775 29,608 5.52% 653,954 31,580 6.44%
------------------------------------------------------------------------
Cash and due from banks 18,519 18,304
Premises and equipment 16,717 16,464
Other assets 23,285 25,062
Allowance for loan losses (4,053) (3,785)
------------ ---------------
Total assets $770,243 $709,999
============ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits
Demand deposits $218,728 $ 1,428 .87% $196,577 $ 2,023 1.37%
Savings deposits 57,510 245 .57% 51,213 625 1.63%
Time deposits 249,499 5,876 3.14% 235,473 6,607 3.74%
Securities sold under
agreements to repurchase 44,158 193 .58% 31,983 257 1.07%
FHLB advances 31,362 1,226 5.21% 37,440 1,419 5.05%
Federal funds purchased 18 - .00% 400 6 2.00%
Other debt 9,339 183 2.61% 5,243 131 3.33%
------------------------------------------------------------------------
Total interest-bearing
Liabilities 610,614 9,151 2.00% 558,329 11,068 2.64%
------------------------------------------------------------------------
Non interest-bearing demand deposits 84,263 76,837
Other liabilities 6,579 6,965
Stockholders' equity 68,787 67,868
------------ ---------------
Total liabilities & equity $770,243 $709,999
============ ===============
Net interest income (TE) $20,457 $20,512
============ ===========
Net interest spread 3.52% 3.80%
Impact of non-interest
bearing funds .29% .38%
------------ ------------
Net yield on interest-
earning assets (TE) 3.81% 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
nine months ended September 30, 2003, as compared to the same period in 2002 (in
thousands):
For the nine months ended September 30,
2003 compared to 2002
Increase / (Decrease)
Total Rate/
Change Volume Rate Volume (4)
--------------------------------------------------------------
Earning Assets:
Interest-bearing deposits $43 $ 94 $ (20) $ (31)
Federal funds sold 5 66 (39) (22)
Investment securities:
Taxable (882) 294 (1,104) (72)
Tax-exempt (1) (66) (18) (49) 1
Loans (2)(3) (1,072) 2,139 (2,982) (229)
--------------------------------------------------------------
Total interest income (1,972) 2,575 (4,194) (353)
--------------------------------------------------------------
Interest-Bearing Liabilities:
Interest-bearing deposits
Demand deposits (595) 228 (737) (86)
Savings deposits (380) 77 (407) (50)
Time deposits (731) 393 (1,060) (64)
Securities sold under
agreements to repurchase (64) 98 (118) (44)
FHLB advances (193) (230) 45 (8)
Federal funds purchased (6) (6) (6) 6
Other debt 52 102 (28) (22)
--------------------------------------------------------------
Total interest expense (1,917) 662 (2,311) (268)
--------------------------------------------------------------
Net interest income $(55) $1,913 $(1,883) $(85)
==============================================================
(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 $55,000, or .3% to
$20,457,000 for the nine months ended September 30, 2003, from $20,512,000 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 nine months ended September 30, 2003, average earning assets
increased by $61,821,000, or 9.5%, and average interest-bearing liabilities
increased $52,285,000, or 9.4%, compared with average balances for the same
period in 2002. Changes in average balances are shown below:
> Average loans increased by $40.4 million or 8.4% in 2003 as compared
to 2002.
> Average securities increased by $8.1 million or 5.1% in 2003 as
compared to 2002.
> Average interest-bearing deposits increased by $42.5 million or 8.8%
in 2003 as compared to 2002.
> Average securities sold under agreements to repurchase increased by
$12.2 million or 38.2% in 2003 as compared to 2002.
> Average borrowings and other debt decreased by $2.0 million or 4.7% in
2003 as compared to 2002.
> Net interest margin has decreased to 3.81% in 2003 from 4.18% in 2002.
Provision for Loan Losses
The provision for loan losses for the nine months ended September 30, 2003
was $750,000 compared to $775,000 for the same period in 2002. The decrease in
the provision was due to a decrease in net charge-offs, partially offset by an
increase in non-performing loans. Net charge-offs were $204,000 for the nine
months ended September 30, 2003 compared to $578,000 during the same period in
2002. Nonperforming loans increased from $3,721,000 as of September 30, 2002 to
$4,766,000 as of September 30, 2003. 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 nine months ended September 30, 2003 and 2002 (in thousands):
Three months ended Nine months ended
September 30, September 30,
2003 2002 $ Change 2003 2002 $ Change
-------------- ------------ -------------- ----------- ------------ --------------
Trust $499 $470 $29 $1,444 $1,398 $46
Brokerage 85 61 24 209 195 14
Insurance commissions 363 347 16 1,141 901 240
Service charges 1,165 1,092 73 3,303 2,609 694
Security gains - 107 (107) 370 223 147
Mortgage banking 673 351 322 1,755 1,054 701
Other 583 500 83 1,691 1,347 344
-------------- ------------ -------------- ----------- ------------ --------------
Total other income $3,368 $2,928 $440 $9,913 $7,727 $2,186
============== ============ ============== =========== ============ ==============
Explanations for the three months ended September 30, 2003 as compared to
the same period in 2002:
< Trust revenues increased $29,000 or 6.2% to $499,000 from $470,000. Trust
assets, reported at market value, were $339 million at September 30, 2003
compared to $310 million at September 30, 2002. The increase in trust
revenues was the result of new business and an increase in equity prices.
< Revenues from brokerage increased $24,000 or 39.3% to $85,000 from $61,000
as a result of an increase in the number of stock transactions.
< Insurance commissions increased $16,000 or 4.6% to $363,000 from $347,000.
Increased sales of business property and casualty insurance has increased
revenues.
< Fees from service charges increased $73,000 or 6.7% to $1,165,000 from
$1,092,000. 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 $322,000 or 91.7% to $673,000 from
$351,000. 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 historically low level of mortgage lending rates. Loans
sold balances are as follows:
< $49.7 million (representing 522 loans) for the 3rd quarter of 2003.
< $25.4 million (representing 260 loans) for the 3rd quarter of 2002.
FirstMid 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 $83,000 or 16.6% to $583,000 from $500,000. This
increase was primarily due to fees from ATM usage and placement of
additional ATMs late in 2002.
Explanations for the nine months ended September 30, 2003 as compared to
the same period in 2002:
< Trust revenues increased $46,000 or 3.3% to $1,444,000 from $1,398,000.
Trust assets, reported at market value, were $339 million at September 30,
2003 compared to $310 million at September 30, 2002. The increase in trust
revenues was the result of new business and an increase in equity prices.
< Revenues from brokerage increased $14,000 or 7.2% to $209,000 from $195,000
as a result of an increase in the number of stock transactions.
< Insurance commissions increased $240,000 or 26.6% to $1,141,000 from
$901,000. 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 $694,000 or 26.6% to $3,303,000 from
$2,609,000. 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 $223,000 for the same period 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 $701,000 or 66.5% to $1,755,000 from
$1,054,000. 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 historically low level of mortgage lending rates. Loans
sold balances are as follows:
< $125.1 million (representing 1,349 loans) through the 3rd quarter of
2003.
< $64.8 million (representing 695 loans) through the 3rd 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 $344,000 or 25.5% to $1,691,000 from $1,347,000.
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 nine months ended September 30,
2003 and 2002 (in thousands):
Three months ended Nine months ended
September 30, September 30,
------------ ------------ -------------- ----------- ------------ -------------
2003 2002 $ Change 2003 2002 $ Change
------------ ------------ -------------- ----------- ------------ -------------
Salaries and benefits $ 3,468 $ 3,242 $ 226 $10,197 $ 9,344 $ 853
Occupancy and equipment 1,079 1,043 36 3,202 3,023 179
Amortization of intangibles 212 187 25 577 557 20
Stationery and supplies 148 174 (26) 435 452 (17)
Legal and professional fees 217 230 (13) 703 726 (23)
Marketing and promotion 142 140 2 464 449 15
Other operating expenses 1,062 1,244 (182) 3,096 3,354 (258)
------------ ------------ -------------- ----------- ------------ -------------
Total other expense $ 6,328 $ 6,260 $68 $18,674 $17,905 $ 769
============ ============ ============== =========== ============ =============
Explanations for the three months ended September 30, 2003 as compared to
the same period in 2002:
< Salaries and employee benefits, the largest component of other expense,
increased $226,000 or 7.0% to $3,468,000 from $3,242,000. 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 320
full-time equivalent employees at September 30, 2003 compared to 312 at
September 30, 2002.
< Occupancy and equipment expense increased $36,000 or 3.5% to $1,079,000
from $1,043,000. This increase included building maintenance, utilities and
rent expense for Champaign and Maryville branches added in November 2002.
< Other operating expenses decreased $182,000 or 14.5% to $1,062,000 in 2003
from $1,244,000 in 2002. This decrease was primarily a result of
professional fees for implementing the payment privilege program in 2002.
< All other categories of operating expenses decreased a net of $12,000 or
1.6% to $719,000 from $731,000.
Explanations for the nine months ended September 30, 2003 as compared to
the same period in 2002:
< Salaries and employee benefits increased $853,000 or 9.1% to $10,197,000
from $9,344,000. 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 320 full-time
equivalent employees at September 30, 2003 compared to 312 at September 30,
2002.
< Occupancy and equipment expense increased $179,000 or 5.9% to $3,202,000
from $3,023,000. This increase included building maintenance, utilities and
rent expense for Checkley, and Champaign and Maryville branches added in
November 2002.
< Other operating expenses decreased $258,000 or 7.7% to $3,096,000 in 2003
from $3,354,000 in 2002. This decrease was primarily a result of
professional fees for implementing the payment privilege program during the
third quarter of 2002 and 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 decreased a net of $5,000 or .2%
to $2,179,000 from $2,184,000.
Income Taxes
Total income tax expense amounted to $1,257,000 (35.2% effective tax rate)
for the three months ended September 30, 2003, compared to $1,016,000 (33.3%
effective tax rate) for the same period in 2002. For the nine months ended
September 30, 2003, total income tax expense amounted to $3,577,000 (34.2%
effective tax rate) compared to $3,002,000 (33.2% 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 September 30, 2003 and December 31, 2002 (in
thousands):
September 30, December 31,
2003 2002
--------------- ---------------
Real estate - residential $108,472 $116,588
Real estate - agricultural 50,564 47,210
Real estate - commercial 217,796 176,235
--------------- ---------------
Total real estate - mortgage $376,832 $340,033
Commercial and agricultural 131,828 127,065
Installment 29,590 31,119
Other 1,493 1,647
--------------- ---------------
Total loans $539,743 $499,864
=============== ===============
Overall loans increased $39.9 million, or 8.0%. The largest component of
this increase was commercial real estate loans, which increased $41.5 million,
or 23.6%. 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 $1,345,600 and $7,070,000 as of September 30, 2003 and
December 31, 2002, respectively.
At September 30, 2003, the Company had loan concentrations in agricultural
industries of $92.5 million, or 17.1%, of outstanding loans and $90.7 million,
or 18.1%, at December 31, 2002. In addition, the Company has a loan
concentration to "motels, hotels and tourist courts" of $18.3 million or 3.4% of
outstanding loans at September 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
September 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 $ 50,115 $ 56,076 $2,281 $108,472
Real estate - agricultural 8,039 36,803 5,722 50,564
Real estate - commercial 56,497 132,211 29,088 217,796
---------------------------------------------------------------
Total real estate - mortgage $114,651 $225,090 $ 37,091 $376,832
Commercial and agricultural 93,772 36,534 1,522 131,828
Installment 15,932 13,612 46 29,590
Other 656 630 207 1,493
---------------------------------------------------------------
Total loans $225,011 $275,866 $ 38,866 $539,743
===============================================================
(1) Based on scheduled principal repayments.
(2) Includes demand loans, past due loans and overdrafts.
As of September 30, 2003, loans with maturities over one year consisted of
approximately $224,238,000 in fixed rate loans and $90,494,000 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 September 30, 2003 and December 31, 2002 (in thousands):
September 30, December 31,
2003 2002
---------------- ---------------
Nonaccrual loans $4,731 $2,961
Renegotiated loans which are performing
in accordance with revised terms 35 188
---------------- ---------------
Total nonperforming Loans $4,766 $3,149
================ ===============
At September 30, 2003, approximately $2,958,000 of the $4,766,000 total
nonperforming loans resulted from collateral-dependent loans to three borrowers.
The $1,770,000 increase in nonaccrual loans during the nine months ended
September 30, 2003, resulted from the net of $3,690,000 of loans put on
nonaccrual status, $1,629,000 of loans brought current or paid-off and $291,000
of loans transferred to other real estate owned. The increase in nonaccrual
loans during the period ended September 30, 2003, 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 $198,000 for the nine months
ended September 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 September 30, 2003, the Company's loan
portfolio included $92.5 million of loans to borrowers whose businesses are
directly related to agriculture. The balance increased by $1.8 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 September 30, 2003 and
2002, and of changes in the allowance for the three and nine month periods ended
September 30, 2003 and 2002, was as follows (dollars in thousands):
Three months ended Nine months ended
September 30, September 30,
2003 2002 2003 2002
---------------------------------------------------------
Average loans outstanding,
net of unearned income $538,035 $493,474 $519,509 $479,062
Allowance-beginning of period $ 4,122 $ 3,713 $ 3,723 $ 3,702
Charge-offs:
Real estate-mortgage 15 27 40 169
Commercial, financial & agricultural 76 268 529 326
Installment 41 56 89 144
---------------------------------------------------------
Total charge-offs 132 351 658 639
Recoveries:
Real estate-mortgage 2 12 2 12
Commercial, financial & agricultural 22 13 421 15
Installment 5 12 31 34
---------------------------------------------------------
Total recoveries 29 37 454 61
---------------------------------------------------------
Net charge-offs (recoveries) 103 314 204 578
Provision for loan losses 250 500 750 775
---------------------------------------------------------
Allowance-end of period $ 4,269 $ 3,899 $ 4,269 $ 3,899
=========================================================
Ratio of annualized net charge offs
to average loans .08% .26% .05% .16%
=========================================================
Ratio of allowance for loan losses to
loans outstanding (less unearned
interest at end of period) .79% .78% .79% .78%
=========================================================
Ratio of allowance for loan losses
to nonperforming loans 89.6% 104.8% 89.6% 104.8%
=========================================================
During the third quarter of 2002, the Company had charge-offs of $197,000
on agricultural operating loans of a single borrower. During the nine months
ended September 30, 2003, the Company received a recovery of $382,000 on two
commercial real estate loans of a single borrower. During the same period, 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
during the same period.
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 September 30, 2003 and December 31, 2002
(in thousands):
September 30, December 31,
2003 2002
----------------------------- ---------------------------
Weighted Weighted
Amortized Average Amortized Average
Cost Yield Cost Yield
-------------- -------------- ------------- -------------
U.S. Treasury securities and obligations
of U.S. government corporations and agencies $ 98,727 2.96% $ 76,342 3.80%
Obligations of states and
political subdivisions 26,836 4.62% 27,597 4.63%
Mortgage-backed securities 24,466 3.15% 44,697 3.72%
Other securities 15,987 5.60% 15,807 5.86%
-------------- -------------- ------------- -------------
Total securities $166,016 3.51% $164,443 4.12%
============== ============== ============= =============
At September 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 September 30, 2003 and December 31, 2002 were as follows (in
thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- --------------- ---------------- --------------
September 30, 2003
Available-for-sale:
U.S. Treasury securities and obligations
of U.S. government corporations & agencies $ 98,727 $1,007 $ (150) $ 99,584
Obligations of states and political
subdivisions 25,144 1,273 - 26,417
Mortgage-backed securities 24,466 310 (97) 24,679
Federal Home Loan Bank stock 3,465 - - 3,465
Other securities 12,522 388 - 12,910
--------------- --------------- ---------------- --------------
Total available-for-sale $164,324 $ 2,978 $ (247) $167,055
=============== =============== ================ ==============
Held-to-maturity:
Obligations of states and political
subdivisions $ 1,692 $ 22 - $ 1,714
=============== =============== ================ ==============
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 September 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 $35,166 $ 52,589 $ 6,000 $ 4,972 $ 98,727
Obligations of state and
political subdivisions - 8,093 10,163 6,888 25,144
Mortgage-backed securities 3,157 21,309 - - 24,466
Federal Home Loan Bank stock - - - 3,465 3,465
Other securities - - - 12,522 12,522
------------------------------------------------------------------------
Total investments $38,323 $81,991 $16,163 $27,847 $164,324
========================================================================
Weighted average yield 2.94% 3.10% 4.21% 4.99% 3.49%
Full tax-equivalent yield 2.94% 3.29% 5.44% 5.53% 3.80%
========================================================================
Held-to-maturity:
Obligations of state and
political subdivisions $ 125 $ 610 $ 400 $ 557 $ 1,692
========================================================================
Weighted average yield 5.05% 5.34% 5.61% 5.40% 5.40%
Full tax-equivalent yield 7.29% 7.74% 8.14% 7.80% 7.82%
========================================================================
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 September 30, 2003.
Investment securities carried at approximately $144,582,000 and
$141,462,000 at September 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 nine months ended September 30, 2003
and for the year ended December 31, 2002 (dollars in thousands):
September 30, December 31,
2003 2002
--------------------------------------------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
--------------------------------------------------------------
Demand deposits:
Non-interest-bearing $ 84,263 - $ 79,082 -
Interest-bearing 218,728 .87% 200,653 1.33%
Savings 57,510 .57% 51,634 1.55%
Time deposits 249,499 3.14% 242,301 3.63%
--------------------------------------------------------------
Total average deposits $610,000 1.65% $573,670 2.14%
==============================================================
The following table sets forth the maturity of time deposits of
$100,000 or more at September 30, 2003 and December 31, 2002 (in thousands):
September 30, December 31,
2003 2002
--------------- --------------
3 months or less $ 14,700 $ 29,085
Over 3 through 6 months 13,317 18,926
Over 6 through 12 months 19,059 13,715
Over 12 months 26,856 32,225
--------------- --------------
Total $ 73,932 $ 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 September 30, 2003 and December 31, 2002 is presented
below (in thousands):
September 30, December 31,
2003 2002
--------------- --------------
Securities sold under agreements to repurchase $53,333 $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 $93,258 $88,809
=============== ==============
Average interest rate at end of period 2.26% 2.53%
Maximum outstanding at any month-end
Securities sold under agreements to repurchase $53,333 $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 $98,258 $96,863
=============== ==============
Averages for the period (YTD)
Securities sold under agreements to repurchase $44,158 $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 26,362 30,300
Federal funds purchased 18 299
Debt:
Loans due in one year or less 8,719 5,350
Loans due after one year 621 738
--------------- --------------
Total $84,878 $77,750
=============== ==============
Average interest rate during the period 2.48% 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 September 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
(2.33% as of September 30, 2003) that matured on October 24, 2003. Management
has subsequently reached an agreement with The Northern Trust Company to renew
this loan for one year with a maturity date of October 23, 2004, under the same
terms and conditions stated above. 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
September 30, 2003 and at December 31, 2002.
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 September 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 September 30, 2003 (in thousands):
Number of Months Until Next Repricing Opportunity
0-1 1-3 3-6 6-12 12+
Interest-earning assets: --------------- --------------- ---------------- --------------- ---------------
Federal funds sold $15,750 $ - $ - $ - $ -
Taxable investment securities 20,055 9,029 5,659 22,028 83,836
Nontaxable investment securities - 15 265 31 27,829
Loans 161,739 31,351 45,800 53,821 247,034
--------------- --------------- ---------------- --------------- ---------------
Total $ 197,544 $ 40,395 $51,724 $ 75,880 $358,699
--------------- --------------- ---------------- --------------- ---------------
Interest-bearing liabilities:
Savings and N.O.W. accounts 49,782 3,873 1,588 3,497 149,020
Money market accounts 51,726 506 759 1,438 24,863
Other time deposits 20,770 25,636 40,628 54,120 96,168
Short-term borrowings/debt 53,334 - 5,000 - -
Long-term borrowings/debt - - - - 25,300
--------------- --------------- ---------------- --------------- ---------------
Total $ 175,612 $ 30,015 $ 47,975 $ 59,055 $295,351
=============== =============== ================ =============== ===============
Periodic GAP $21,932 $ 10,380 $ 3,749 $ 16,825 $ 63,348
=============== =============== ================ =============== ===============
Cumulative GAP $21,932 $ 32,312 $ 36,061 $ 52,886 $116,234
=============== =============== ================ =============== ===============
GAP as a % of interest-earning assets:
Periodic 3.0% 1.4% .5% 2.3% 8.7%
Cumulative 3.0% 4.5% 5.0% 7.3% 16.0%
The static GAP analysis shows that at September 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, including static GAP analysis. 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 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 September 30, 2003, the Company's stockholders' equity had increased
$3,494,000 or 5.2% to $70,301,000 from $66,807,000 as of December 31, 2002.
During the first nine months of 2003, net income contributed $6,877,000 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 $706,000, net of tax. Additional purchases of treasury stock (103,419
shares at an average cost of $33.51 per share) decreased stockholders' equity by
$3,466,000.
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 September 30, 2003 and December 31, 2002, the Company and First Mid
Bank have met all capital adequacy requirements.
As of September 30, 2003, 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. 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
------------- ------------ ------------ ------------ ------------ ------------
September 30, 2003
Total Capital (to risk-weighted assets)
Company $59,791 10.70% $44,707 > 8.00% N/A N/A
-
First Mid Bank 64,624 11.64% 44,421 > 8.00% $55,526 >10.00%
- -
Tier 1 Capital (to risk-weighted assets)
Company 55,522 9.94% 22,354 > 4.00% N/A N/A
-
First Mid Bank 60,355 10.87% 22,211 > 4.00% 33,316 > 6.00%
- -
Tier 1 Capital (to average assets)
Company 55,522 7.27% 30,552 > 4.00% N/A N/A
-
First Mid Bank 60,355 7.94% 30,410 > 4.00% 38,012 > 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 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, bringing the aggregate total to 8% of the Company's common stock
plus $18 million of additional shares. During the nine-month period ending
September 30, 2003, the Company repurchased 103,419 shares at a total price of
$3,466,000. Since 1998, the Company has repurchased a total of 514,981 shares at
a total price of $13,768,000. As of September 30, 2003, the Company was
authorized per all repurchase programs to purchase $10,439,000 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
Assets. As of September 30, 2003, First Mid Bank's ratios of Total Capital
to Risk-Weighted Assets of 11.64% and Tier 1 Capital to Total Assets of
7.94% 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 September 30, 2003, the excess collateral at the Federal Home Loan Bank
will support approximately $26 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 September 30, 2003, and $6,175,000 in available
funds. The credit agreement matured on October 24, 2003. Management has
subsequently reached and agreement with The Northern Trust Company to renew
the loan for one year with a maturity date of October 23, 2004 with the
same terms and conditions stated above. 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 September 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 September 30, 2003 (in thousands):
Less than More than
Total 1 year 1-3 years 3-5 years 5 years
-------------- --------------- --------------- --------------- --------------
Time deposits $241,856 $145,536 $52,712 $43,028 $580
Debt 9,625 9,025 400 200 -
Other borrowings 83,633 58,333 17,300 5,000 3,000
Operating leases 2,385 300 500 341 1,244
-------------- --------------- --------------- --------------- --------------
$337,499 $213,194 $70,912 $48,569 $4,824
============== =============== =============== =============== ==============
For the nine-month period ended September 30, 2003, net cash of $15.9
million and $2.2 million was provided from operating activities and financing
activities, respectively, while investing activities used net cash of $48.1
million. Thus, cash and cash equivalents decreased by $30.0 million since
year-end 2002. Generally, during 2003, decreases in deposits 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 September 30, 2003 and December 31, 2002 were as
follows (in thousands):
September 30, December 31,
2003 2002
---------------- --------------
Unused commitments, including lines of credit:
Commercial real estate $ 26,445 $31,506
Commercial operating 30,125 31,160
Home equity 11,629 9,509
Other 12,557 13,753
---------------- --------------
Total $ 80,756 $85,928
================ ==============
Standby letters of credit $2,455 $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.
Subsequent Event
On October 24, 2003, the Company reached an agreement with The Northern
Trust Company to renew its revolving credit agreement in the amount of $15
million for one year with a maturity date of October 23, 2004, under the same
terms and conditions listed in the "Repurchase Agreements and Other Borrowings"
section above.
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 of the end of the period covered by this
report and have concluded that the Company's disclosure controls and procedures
are effective to ensure that information required to be disclosed in the reports
that are filed or submitted under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.
Changes in Internal Controls. There have been no changes in the Company's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
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
None.
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 July 23, 2003 regarding the Company's
financial statements as of June 30, 2003.
The Company filed Form 8-K on October 29, 2003 regarding the Company's
financial statements as of September 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)
Date: November 13, 2003
/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 8)
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 November 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 November 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 September 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 November 13, 2003
/s/ William S. Rowland
William S. Rowland
President and Chief Executive Officer
/s/ Michael L. Taylor
Michael L. Taylor
Chief Financial Officer