Business Context and Reporting Period
Company: First Mid-Illinois Bancshares, Inc.
Reporting Period: Fiscal year ended December 31, 2010
Business Overview: A financial holding company operating primarily through its subsidiary, First Mid-Illinois Bank & Trust, N.A. The company focuses on community banking, wealth management, and insurance brokerage in east central Illinois. In September 2010, the company acquired 10 branches from First Bank, significantly expanding its footprint in central Illinois.
Key Financial Metrics (2010)
| Metric | Value |
|---|---|
| Net Income | $8.76 million |
| Net Income Available to Common Stockholders | $6.52 million |
| Diluted Earnings Per Share | $1.07 |
| Total Assets | $1.468 billion |
| Total Loans (Net) | $794.2 million |
| Total Deposits | $1.213 billion |
| Net Interest Margin | 3.51% |
| Return on Average Assets | 0.72% |
| Return on Average Common Equity | 7.20% |
| Nonperforming Loans | $10.4 million (1.30% of total loans) |
| Allowance for Loan Losses | $10.4 million (1.29% of total loans) |
| Regulatory Capital Ratios (Company) | Total Risk-Based: 12.84% | Tier 1 Risk-Based: 11.71% | Leverage: 7.42% |
Material Changes vs. Prior Period
- Asset Growth: Total assets increased 34.1% to $1.468 billion, primarily driven by the acquisition of 10 branches which added approximately $336 million in deposits and $135 million in loans.
- Net Income: Increased 6.7% to $8.76 million from $8.21 million in 2009. This was driven by a 12.8% increase in net interest income due to lower interest rates on deposits outpacing the decline in asset yields.
- Net Interest Margin: Expanded to 3.51% from 3.40% in 2009.
- Nonperforming Assets: Nonperforming loans decreased to $10.4 million from $12.7 million in 2009. However, Other Real Estate Owned (OREO) increased significantly to $6.1 million from $2.9 million.
- Expenses: Non-interest expenses rose 11.2% to $36.9 million, largely due to the acquisition and an increase in employee count (419 FTEs vs. 347 in 2009).
Guidance, Outlook, and Risks
Management Commentary: Management expects to continue growing revenue through organic growth and acquisitions while maintaining credit quality. The company maintains a "hands-on" approach to service to differentiate from competitors. The company repurchased 136,380 shares of common stock in 2010 and authorized an additional $5 million repurchase program in February 2011.
Risks and Contingencies:
- Credit Risk: Significant exposure to commercial real estate ($301 million) and agriculture ($123 million). Continued deterioration in real estate values or agricultural commodity prices could increase loan losses.
- Investment Portfolio: The company holds trust preferred securities with significant unrealized losses ($6.0 million). While not currently deemed other-than-temporarily impaired (OTTI) beyond the credit portion recognized, further downgrades could trigger additional charges.
- Regulatory Environment: The Dodd-Frank Act and potential changes to capital requirements (Basel III) may impact operations and capital ratios.
- Liquidity: The company maintains sufficient liquidity with $35 million in federal fund lines and a $20 million revolving credit facility, though market disruptions could affect funding costs.
Investor Verification Checklist
- Verify the integration progress and cost synergies from the September 2010 acquisition of 10 First Bank branches.
- Monitor the trend of Other Real Estate Owned (OREO) assets, which doubled in 2010, and the associated expense impact.
- Review the valuation and potential for further OTTI charges on the trust preferred securities portfolio.
- Assess the impact of the Series B and Series C preferred stock dividends on net income available to common shareholders.
- Track the allowance for loan losses coverage ratio relative to nonperforming loans, which stood at 99.6% at year-end.