Business context and reporting period
First Mid-Illinois Bancshares, Inc. (the filing registrant; identified in the request as First Mid Bancshares, Inc.) filed this Form 10-K for the fiscal year ended December 31, 2013. It operates primarily through its Illinois community bank, alongside wealth management, insurance brokerage, and data-processing businesses. Community banking generated approximately 91% of revenue and profits. The filing reports full-year results and unaudited fourth-quarter data.
Financial performance and condition
| Metric | 2013 | 2012 |
|---|---|---|
| Net interest income | $49.9 million | $49.6 million |
| Net income | $14.7 million | $14.0 million |
| Net income available to common shareholders | $10.3 million | $9.8 million |
| Diluted EPS | $1.73 | $1.62 |
| Net interest margin | 3.38% | 3.44% |
| Return on average assets | 0.94% | 0.91% |
| Return on average common equity | 10.11% | 9.53% |
Fourth-quarter 2013 net income was $3.6 million and diluted EPS was $0.42, compared with $3.5 million and $0.40 in fourth-quarter 2012. Full-year other income was $19.3 million, up 5.6%; noninterest expense rose to $43.5 million from $42.8 million. Provision for loan losses declined to $2.2 million from $2.6 million.
- Balance sheet: Assets were $1.61 billion, up from $1.58 billion. Gross loans were $982.8 million; net loans were $969.0 million. Deposits totaled $1.288 billion.
- Credit quality: Nonperforming loans were $6.5 million, or 0.66% of loans, versus $7.6 million and 0.83% a year earlier. The allowance was $13.2 million, 1.35% of loans and 204.8% of nonperforming loans. Net charge-offs were $720,000.
- Cash flow: Operating activities provided $24.7 million; investing activities used $67.1 million; financing activities provided $24.9 million. Cash and cash equivalents fell $17.6 million to $65.1 million.
- Borrowings and liquidity: Year-end borrowings totaled $159.8 million, including $119.2 million in repurchase agreements and $20.6 million in junior subordinated debentures. The company reported $35 million of overnight federal funds lines, approximately $83.1 million of additional FHLB borrowing capacity, and an unused $15 million parent-company credit line.
- Capital and equity: Consolidated total risk-based capital was 15.58%, Tier 1 risk-based capital 14.37%, and leverage 10.12%; the bank also exceeded well-capitalized thresholds. Equity declined to $149.4 million from $156.7 million, substantially reflecting a $12.9 million after-tax decline in available-for-sale securities value and $4.6 million of share repurchases.
Material changes, outlook, risks and unusual items
- Net income and EPS improved, supported by loan growth, low funding costs, lower credit-loss provision, and higher noninterest income. Net interest margin nevertheless narrowed as earning-asset yields fell.
- Net securities gains increased to $2.3 million, including approximately $1.4 million from selling two trust-preferred securities. The sales also reversed about $2.9 million of previously recorded impairment. One trust-preferred security remained, with $191,000 fair value against $3.652 million book value and $3.461 million unrealized loss; it was on nonaccrual status.
- Loans grew 7.9%; 74% were secured by real estate. Agriculture-related lending was $173.4 million, including $147.1 million to other grain farming. The filing also identifies exposure to hotels and motel operators and real-estate lessors.
- Management said it expected business-development efforts to continue, while emphasizing that growth would not come at the expense of credit quality or prudent asset-liability management. No specific earnings or financial guidance is provided.
- Interest-rate exposure remains material: management reported a liability-sensitive cumulative gap through one year and modeled lower net interest income under both 100-basis-point rate increases and decreases. The filing cautions that these are hypothetical estimates, not forecasts.
- Other key risks include Illinois economic conditions, agricultural commodity prices and weather, real-estate values, loan concentrations, deposit and funding pressures, securities valuation, regulation, and operational risks. Off-balance-sheet commitments to extend credit were $239.5 million, plus $4.7 million in standby letters of credit.
- Preferred dividends totaled $4.4 million and reduce earnings available to common shareholders; preferred holders have priority over common shareholders for dividends and liquidation. Common dividends declared were $0.46 per share. The company repurchased 202,170 shares during 2013 for $4.6 million.
- Joseph R. Dively became chairman, president, and CEO on January 1, 2014. The independent auditor issued an unqualified opinion on the financial statements and internal controls; management and the auditor reported effective internal control over financial reporting. No legal proceedings were reported.
Important facts for investors to verify
- Whether loan growth can offset continued margin pressure and lower mortgage-banking income.
- Credit trends in agriculture, commercial real estate, and hotel/motel exposures, including allowance adequacy and the trajectory of nonperforming assets.
- The assumptions, cash-flow outlook, and potential further impairment of the remaining trust-preferred security and other securities.
- Liquidity and funding resilience, including public-fund and large-time-deposit balances, repurchase funding, and unused borrowing capacity.
- The effect of preferred-stock dividends, conversion or redemption terms, and repurchases on common earnings, capital, and shareholder returns.