Business Context and Reporting Period
Company: First Mid-Illinois Bancshares, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2009
Business Overview: The Company operates as a one-segment entity providing banking and financial services, primarily through its subsidiary, First Mid-Illinois Bank & Trust, N.A. Operations are concentrated in east central Illinois, with significant exposure to the agricultural sector and commercial real estate.
Key Financial Metrics
| Metric (in thousands, except per share) | Q1 2009 | Q1 2008 | Dec 31, 2008 |
|---|---|---|---|
| Net Income | $2,185 | $2,922 | - |
| Net Income Available to Common | $1,919 | $2,922 | - |
| Diluted EPS | $0.31 | $0.46 | - |
| Total Assets | $1,092,538 | - | $1,049,700 |
| Total Loans (Net) | $696,866 | - | $733,814 |
| Total Deposits | $850,356 | - | $806,354 |
| Stockholders' Equity | $105,936 | - | $82,778 |
| Cash and Cash Equivalents | $119,790 | $64,713 | $86,643 |
| Net Interest Income | $8,604 | $8,502 | - |
| Provision for Loan Losses | $604 | $191 | - |
| Nonperforming Loans | $7,729 | $8,300 | $7,285 |
| Allowance for Loan Losses | $7,993 | $6,251 | $7,587 |
Material Changes vs. Prior Period
- Net Income Decline: Net income decreased by $737,000 (25.2%) compared to Q1 2008. This was driven by a higher provision for loan losses ($604k vs $191k), a decrease in other income due to impairment charges, and increased non-interest expenses.
- Capital Raise: Stockholders' equity increased significantly by $23.2 million (28%) from year-end 2008, primarily due to the issuance of $22.6 million in Series B 9% Non-Cumulative Perpetual Convertible Preferred Stock in February 2009.
- Loan Portfolio Contraction: Net loans decreased by $37 million (5%) from December 31, 2008, primarily due to declines in retail and commercial/agricultural operating loans.
- Deposit Growth: Total deposits increased by $44 million from year-end 2008, driven by growth in interest-bearing deposits, savings, and time deposits.
- Liquidity Increase: Cash and cash equivalents rose to $119.8 million, up from $86.6 million at year-end 2008, as the Company increased liquidity reserves in response to economic conditions.
- Impairment Charges: The Company recorded an other-than-temporary impairment (OTTI) charge of $869,000 related to trust preferred securities, reducing non-interest income.
Guidance, Outlook, Risks, and Unusual Items
- Unusual Items:
- OTTI Loss: A credit loss of $869,000 was recognized on two trust preferred securities. The remaining unrealized loss on these securities was recorded in other comprehensive income.
- Merchant Banking Sale: A one-time gain of $1,000,000 was recognized from the sale of the merchant card servicing portfolio.
- Regulatory Capital: The Company remains "well-capitalized" under regulatory standards. Tier 1 capital to risk-weighted assets ratio improved to 14.13% (from 11.02% at year-end 2008) due to the preferred stock issuance.
- FDIC Assessments: The Company faces increased FDIC insurance assessment rates effective April 1, 2009, and a potential special assessment to shore up the Deposit Insurance Fund. Management is assessing the financial impact.
- Interest Rate Sensitivity: As of March 31, 2009, the Company was liability-sensitive within the 12-month horizon. Future increases in interest rates could adversely affect net interest income, while decreases could have a positive effect.
- Credit Quality Risks: Significant loan concentrations exist in agriculture ($108.8 million) and commercial real estate (hotels/motels $46.6 million; lessors $112.8 million). Management notes that low commodity prices or reduced travel could increase nonperforming loans in these sectors.
- Forward-Looking Statements: Management cautions that actual results may differ due to severe disruptions in financial markets, changes in interest rates, and general economic conditions.
Investor Verification Checklist
- Preferred Stock Terms: Verify the conversion price ($21.94) and dividend rate (9%) of the newly issued Series B Preferred Stock and its impact on future earnings per share upon conversion.
- Trust Preferred Securities: Review the specific credit analysis of the trust preferred securities that incurred the $869,000 OTTI charge to assess the risk of further impairments in the portfolio.
- Loan Concentrations: Monitor the performance of the agricultural and commercial real estate loan portfolios, which represent significant concentrations of credit risk.
- FDIC Costs: Track the final impact of the new FDIC risk-based assessment rates and the special assessment on future operating expenses.
- Nonperforming Assets: Observe the trend in Other Real Estate Owned (OREO), which increased to $3.2 million, and the associated valuation allowances.