Exhibit 99
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2008 will no doubt go down as one of the most, if not the most, turbulent year in the history of our Nation’s economy and banking system. Moreover, as we begin 2009, the outlook is unsettling at best. As CEO, I see no reason to reiterate what you already know about the economy and the macro events of 2008. Rather I will go straight to First Mid’s 2008 performance.
First and foremost, we ended the year with a strong capital position that exceeded—by a substantial margin—the requirements for the regulatory definition of “well-capitalized.” The specific ratios for the Bank, which are on the second page of this report, increased during 2008. The book value of our stock also increased in 2008 and ended the year at $13.50 per share, up from $12.82 per share on December 31, 2007. This was accomplished while paying a dividend of $.38 per share in 2008 and repurchasing approximately $6.8 million of our common stock in open-market or privately negotiated transactions.
Our balance sheet is also quite liquid as we ended the year with $68.9 million of excess funds sold as compared to $2.4 million a year earlier. This was accomplished mostly as a result of an increase in our deposit balances from $770.6 million at the end of 2007 to $806.4 million on December 31, 2008. As I mentioned to you in my third quarter letter, the increase in liquidity was by design and is part of a process we began nearly a year ago.
The economy seems likely to remain weak for the foreseeable future and many businesses and households will no doubt be under some amount of financial stress. As a result we increased our allowance for loan losses from $6.1 million at the end of 2007 to $7.6 million at the end of 2008. We took this action in spite of the fact that the total amount of our nonperforming loans declined slightly during the year from $7.5 million on December 31, 2007 to $7.3 million on December 31, 2008. The allowance account now represents 104% of nonperforming loans. A negative statistic which I must point out deals with the level of other real estate owned (OREO). OREO represents property we have acquired through foreclosure proceedings or in some cases a process known as deed in lieu of foreclosure. Regardless of how acquired, our OREO balances now amount to $2.4 million as compared to $.7 million on December 31, 2007. These are assets upon which we earn no interest and they are a burden to our operations. We actively attempt to market these OREO properties but this is a difficult process in this environment.
Our earnings for 2008 amounted to $10.5 million ($1.67 per diluted share) as compared with $10.2 million ($1.57 per diluted share) in 2007. Given the difficult environment we are in, I am pleased with the increase in profitability. The increase was made possible largely through an increase in the net interest margin from 3.43% in 2007 to 3.73% in 2008 and in spite of an increase in the provision for loan losses from $.9 million in 2007 to $3.6 million in 2008. The provision increase was the result of our desire to increase the allowance for loan losses as previously mentioned and to replenish the allowance account for loans which we charged off during the course of the year. Net charge offs in 2008 amounted to $2.1 million as compared to $.6 million in 2007. There are other matters as well which impacted our performance and these are noted in the comparative financial statements and tables appearing on the second page.
There are two other events of note which I want to mention in this letter. First, I am very pleased to announce that in January 2009, Benjamin I. Lumpkin joined the Board of Directors of First Mid-Illinois Bancshares, Inc. and First Mid-Illinois Bank & Trust, N.A. The Lumpkin family has been involved with First Mid for many years and Ben is a welcome addition to our Board. He brings a wealth of knowledge and we all look forward to working with him.
The second matter that I want to comment about is the private placement of up to $25 million of non-cumulative perpetual convertible preferred stock announced on December 11, 2008. Our goal is to complete the private placement by mid-February 2009. The purpose of the offering is to provide Tier 1 Capital for regulatory purposes, improve our already strong capital position, and put First Mid in a position to respond to the challenges and opportunities which will inevitably lie ahead. The preferred stock offered in the proposed private placement will not be registered under the Securities Act of 1933, as amended, or the securities laws of any state and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements under the Securities Act and applicable state securities laws.
Thank you for your continued support, and as always, feel free to contact me if you desire additional information.
Very Truly Yours,
/s/ William S. Rowland
William S. Rowland
Chairman and Chief Executive Officer
February 2, 2009
Forward Looking Statement-This report may contain certain forward-looking statements, 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 1955. 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 risks and uncertainties, including those described in Item 1A-“Risk Factors” and other sections of the Company’s Annual Report on Form 10-K and the Company’s other filings with the SEC, and changes in interest rates, general economic conditions and those in the Company’s market area, 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 and the valuation of the investment portfolio, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area and accounting principles, policies and guidelines. Furthermore, forward-looking statements speak only as of the date they are made. Except as required under the federal securities laws or the rules and regulations of the SEC, we do not undertake any obligation to update or review any forward-looking information, whether as a result of new information, future events or otherwise.
First Mid-Illinois Bancshares, Inc.
1515 Charleston Avenue
Mattoon, Illinois 61938
217-234-7454
www.firstmid.com
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| (unaudited) | ||||||||
| (in thousands, except share data) | Dec 31 | Dec 31 | ||||||
| 2008 | 2007 | |||||||
| Assets | ||||||||
| Cash and due from banks | $ | 17,756 | $ | 28,737 | ||||
| Federal funds sold and other interest-bearing deposits | 68,887 | 2,386 | ||||||
| Investment securities: | ||||||||
| Available-for-sale, at fair value | 169,476 | 184,033 | ||||||
| Held-to-maturity, at amortized cost (estimated fair value of $609 | ||||||||
| and $1,194 at December 31, 2008 and 2007, respectively) | 599 | 1,178 | ||||||
| Loans | 741,938 | 748,161 | ||||||
| Less allowance for loan losses | (7,587 | ) | (6,118 | ) | ||||
| Net loans | 734,351 | 742,043 | ||||||
| Premises and equipment, net | 14,985 | 15,520 | ||||||
| Goodwill, net | 17,363 | 17,363 | ||||||
| Intangible assets, net | 3,562 | 4,327 | ||||||
| Other assets | 22,721 | 20,751 | ||||||
| Total assets | $ | 1,049,700 | $ | 1,016,338 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Deposits: | ||||||||
| Non-interest bearing | $ | 119,986 | $ | 124,486 | ||||
| Interest bearing | 686,368 | 646,097 | ||||||
| Total deposits | 806,354 | 770,583 | ||||||
| Repurchase agreements with customers | 80,708 | 68,300 | ||||||
| Other borrowings | 50,750 | 67,250 | ||||||
| Junior subordinated debentures | 20,620 | 20,620 | ||||||
| Other liabilities | 8,490 | 9,133 | ||||||
| Total liabilities | 966,922 | 935,886 | ||||||
| Stockholders’ Equity: | ||||||||
| Common stock ($4 par value; authorized 18,000,000 shares; issued | ||||||||
| 7,254,117 shares in 2008 and 7,135,113 shares in 2007) | 29,017 | 28,450 | ||||||
| Additional paid-in capital | 25,289 | 23,308 | ||||||
| Retained earnings | 58,059 | 49,895 | ||||||
| Deferred compensation | 2,787 | 2,568 | ||||||
| Accumulated other comprehensive income (loss) | (416 | ) | 1,096 | |||||
| Treasury stock at cost, 1,121,273 shares in 2008 | ||||||||
| and 858,396 in 2007 | (31,958 | ) | (24,955 | ) | ||||
| Total stockholders’ equity | 82,778 | 80,452 | ||||||
| Total liabilities and stockholders’ equity | $ | 1,049,700 | $ | 1,016,338 | ||||
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||
| (In thousands) (unaudited) | ||||||||
| For the years ended December 31, | 2008 | 2007 | ||||||
| Interest income: | ||||||||
| Interest and fees on loans | $ | 47,748 | $ | 50,557 | ||||
| Interest on investment securities | 8,559 | 9,160 | ||||||
| Interest on federal funds sold & other deposits | 759 | 214 | ||||||
| Total interest income | 57,066 | 59,931 | ||||||
| Interest expense: | ||||||||
| Interest on deposits | 16,592 | 21,591 | ||||||
| Interest on repurchase agreements with customers | 872 | 2,419 | ||||||
| Interest on other borrowings | 2,484 | 2,849 | ||||||
| Interest on subordinated debt | 1,396 | 1,570 | ||||||
| Total interest expense | 21,344 | 28,429 | ||||||
| Net interest income | 35,722 | 31,502 | ||||||
| Provision for loan losses | 3,559 | 862 | ||||||
| Net interest income after provision for loan losses | 32,163 | 30,640 | ||||||
| Non-interest income: | ||||||||
| Trust revenues | 2,666 | 2,607 | ||||||
| Brokerage commissions | 574 | 528 | ||||||
| Insurance commissions | 1,978 | 1,950 | ||||||
| Services charges | 5,571 | 5,621 | ||||||
| Securities gains (losses), net | 293 | 256 | ||||||
| Mortgage banking revenues | 437 | 482 | ||||||
| Other | 3,745 | 3,217 | ||||||
| Total non-interest income | 15,264 | 14,661 | ||||||
| Non-interest expense: | ||||||||
| Salaries and employee benefits | 16,876 | 16,408 | ||||||
| Net occupancy and equipment expense | 4,959 | 4,831 | ||||||
| Amortization of intangible assets | 766 | 821 | ||||||
| Other | 8,859 | 7,995 | ||||||
| Total non-interest expense | 31,460 | 30,055 | ||||||
| Income before income taxes | 15,967 | 15,246 | ||||||
| Income taxes | 5,443 | 5,087 | ||||||
| Net income | $ | 10,524 | $ | 10,159 | ||||
Per Share Information (unaudited) | ||||||||
| For the years ended December 31, | 2008 | 2007 | ||||||
| Basic earnings per share | $ | 1.69 | $ | 1.60 | ||||
| Diluted earnings per share | $ | 1.67 | $ | 1.57 | ||||
| Book value per share at December 31 | $ | 13.50 | $ | 12.82 | ||||
| Market price of stock at December 31 | $ | 22.20 | $ | 26.05 | ||||
| CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | ||||||||
| (In thousands) (unaudited) | ||||||||
| For the years ended December 31, | 2008 | 2007 | ||||||
| Balance at beginning of period | $ | 80,452 | $ | 75,786 | ||||
| Net income | 10,524 | 10,159 | ||||||
| Dividends on stock | (2,360 | ) | (2,377 | ) | ||||
| Issuance of stock | 1,960 | 1,601 | ||||||
| Purchase of treasury stock | (6,784 | ) | (6,481 | ) | ||||
| Deferred compensation and other adjustments | 498 | 687 | ||||||
| Changes in accumulated other comprehensive income (loss) | (1,512 | ) | 1,077 | |||||
| Balance at end of period | $ | 82,778 | $ | 80,452 | ||||
| SUBSIDIARY BANK CAPITAL RATIOS | Threshold | |||||||
| As of | for “Well- | |||||||
| Dec 31 | Capitalized” | |||||||
| 2008 | Designation | |||||||
| Leverage ratio | 9.16 | % | 5 | % | ||||
| Tier 1 capital to risk-weighted assets | 12.02 | % | 6 | % | ||||
| Total capital to risk-weighted assets | 13.00 | % | 10 | % | ||||