Business Context and Reporting Period
Company: First Mid-Illinois Bancshares, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: The Company operates as a one-segment entity providing banking and financial services 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 | Six Months Ended June 30, 2009 | Six Months Ended June 30, 2008 |
|---|---|---|
| Net Income | $4,184,000 | $5,616,000 |
| Net Income Available to Common Stockholders | $3,409,000 | $5,616,000 |
| Diluted EPS (Common) | $0.55 | $0.88 |
| Total Assets | $1,150,304,000 | $1,016,552,000 (Avg) |
| Total Deposits | $906,853,000 | $806,354,000 (Dec 31, 2008) |
| Net Loans | $682,126,000 | $733,814,000 (Dec 31, 2008) |
| Net Interest Income | $17,095,000 | $17,304,000 |
| Net Interest Margin | 3.32% | 3.62% |
| Provision for Loan Losses | $1,242,000 | $1,059,000 |
| Nonperforming Loans | $10,543,000 | $5,600,000 (June 30, 2008) |
| Allowance for Loan Losses | $8,573,000 | $6,173,000 (June 30, 2008) |
| Stockholders' Equity | $108,111,000 | $82,778,000 (Dec 31, 2008) |
Material Changes vs. Prior Period
- Profitability Decline: Net income decreased by $1.43 million (25.5%) compared to the same period in 2008. This was driven by a decrease in net interest income, higher non-interest expenses, and an other-than-temporary impairment (OTTI) charge.
- Capital Raise: Stockholders' equity increased by $25.3 million (31%) primarily due to the issuance of $22.6 million in Series B 9% Non-Cumulative Perpetual Convertible Preferred Stock in February 2009.
- Asset Composition: Total assets grew to $1.15 billion, driven by a $84.6 million increase in available-for-sale securities (investments in U.S. Treasuries and agency securities) and a $100.5 million increase in deposits. Conversely, net loans decreased by $51.7 million due to slower economic conditions.
- Expense Increase: Non-interest expense rose by $1.29 million (8.2%), largely attributable to a $1.22 million increase in FDIC insurance assessments, including a special assessment of approximately $522,000.
- Credit Quality Deterioration: Nonperforming loans increased to $10.5 million from $5.6 million in the prior year, primarily due to four commercial borrowers becoming delinquent due to recessionary pressures. However, net charge-offs improved significantly to $256,000 from $1.0 million in the prior year.
Guidance, Outlook, and Risks
- Management Commentary: Management maintains a strong capital position, exceeding "well-capitalized" regulatory standards. The company has increased liquidity significantly, with cash and cash equivalents rising to $153.9 million to ensure capacity to meet depositor needs.
- Interest Rate Sensitivity: The company is currently liability-sensitive within the 12-month horizon. Management notes that future increases in interest rates could adversely affect net interest income, while decreases could have a positive effect.
- OTTI Charges: The company recorded an $869,000 impairment charge in the first quarter of 2009 related to trust preferred securities. Management continues to monitor the portfolio for potential additional OTTI losses given market disruptions.
- Concentration Risk: Significant loan concentrations exist in agriculture ($107.6 million, 15.6% of loans) and commercial real estate. Management highlights risks associated with low commodity prices, reduced yields, and declining real estate values.
- FDIC Assessments: The company faces ongoing elevated FDIC assessment costs due to regulatory changes and special assessments to shore up the Deposit Insurance Fund.
Investor Verification Checklist
- Preferred Stock Terms: Verify the conversion price ($21.94) and dividend obligations (9% non-cumulative) of the newly issued Series B Preferred Stock and its impact on future earnings per share.
- Nonperforming Loan Trends: Monitor the $10.5 million nonperforming loan balance and the specific exposure to the four commercial borrowers cited as the primary cause of deterioration.
- FDIC Assessment Impact: Confirm the timing and total cost of the special FDIC assessments and their effect on future operating expenses.
- Investment Portfolio Quality: Review the status of trust preferred securities with unrealized losses ($3.185 million) to assess the risk of further OTTI charges.
- Liquidity vs. Yield: Evaluate the trade-off between the increased liquidity position ($153.9 million cash) and the resulting compression of the net interest margin (3.32%).