Exhibit 99
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As part of my comments in last year’s annual report, I said, “2008 will no doubt go down as one of the most turbulent years in the history of our country’s economy and banking system.” During 2009, much of the turbulence subsided, but, unfortunately, the country remains in a deep recession that continues to place a great deal of stress on the banking system and on individual banks. The economy had its effect on our operations in 2009 and our net income declined to $8.2 million from $10.5 million in 2008. While still a respectable number which will certainly compare well with other banks of similar size, it is nevertheless something of a disappointment to us.
A number of factors contributed to the earnings decline. Chief among these were:
· | An increase in FDIC insurance premiums from $158 thousand in 2008 to $1.9 million in 2009. This results from the significant decline in the reserves of the FDIC fund during 2009. I expect these rates to continue to be high for the next several years as the FDIC fund charges healthy banks to absorb losses from banks which fail; and |
· | Write downs (the accounting term is other than temporary impairment charges) on certain investment securities of $1.8 million in 2009. These securities are what is known as trust preferred securities and are pooled debt obligations of other banks. These securities were acquired some years ago and performed well until recently. Unfortunately, when some of these banks came under credit stress, they frequently deferred payment or in a few cases defaulted on their obligations, thereby reducing the yield on the investments as well as the value of the securities. |
We managed our overhead well in 2009 and, exclusive of FDIC premiums, expenses remained unchanged at $31.3 million – the same level as in 2008. Insurance revenue was basically unchanged at $1.9 million for 2009 compared with $2.0 million in 2008, and mortgage banking revenue increased slightly to $664 thousand in 2009 from $437 thousand in 2008. Trust and brokerage revenue declined to $2.6 million in 2009 from $3.2 million in 2008, mostly as a result of reduced market values on equity securities earlier in the year.
During the first quarter of 2009, we strengthened our capital base through a private placement of convertible preferred stock. Our capital is very strong both in absolute and in ratio terms and we ended 2009 as we began it, with a great deal of balance sheet liquidity. During 2009 we maintained our common dividend at $.38 per share and continued to acquire our own stock when it became available in the market place.
In a recession, no aspect of a bank’s operations is under more stress than its lending activities. During 2009, risk management was an important focus of management. While a prudent strategy, non-performing loans nevertheless increased to $12.7 million on December 31, 2009 from $7.3 million on December 31, 2008. At 1.81%, the ratio of non-performing loans to total loans is quite manageable and remains well below peer average. Nevertheless, it is unacceptable and inconsistent with the credit culture we have developed at First Mid.
As we think about 2010 and the challenges we face, we have three priorities:
· | Risk Management; |
· | Expense Management; and |
· | Opportunistic Growth. |
The first two priorities are key to success in any business but are especially important now given the uncertain economic and bank regulatory environment we face. I believe that in large part, lasting value in a bank is created by avoiding mistakes, so risk management remains a high priority. That said, I also believe we are entering a period where growth opportunities will present themselves. It is true that the economy had a negative effect on our 2009 earnings, but the problems of many other banks, large and small, are much more acute and will be more complicated to solve. The strength and liquidity of our balance sheet and, even more importantly, the capabilities of our management and Board put us in a strategically sound position.
In 2010, we will observe our 145th anniversary. Over that period, the current team and those before us have managed our way through many economic cycles and downturns. While this economic cycle is as severe as the banking system has seen in several decades, we have maintained our position as a stable long-term provider of financial services. We have focused our efforts on building capital, maintaining adequate liquidity, identifying and working through problem loans, and ensuring that our core operating earnings remain strong. We are a stable, strong community-based organization. We did not need or ask for any “bail out” from the government and we are well positioned to take advantage of opportunities which may present themselves.
Thank you for your continued support of First Mid-Illinois Bancshares, Inc.
Very Truly Yours,
/s/ William S. Rowland
William S. Rowland
Chairman and Chief Executive Officer
February 2, 2010
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 | ||||||
2009 | 2008 | |||||||
Assets | ||||||||
Cash and due from banks | $ | 20,243 | $ | 17,756 | ||||
Federal funds sold and other interest-bearing deposits | 79,512 | 68,887 | ||||||
Investment securities: | ||||||||
Available-for-sale, at fair value | 238,697 | 169,476 | ||||||
Held-to-maturity, at amortized cost (estimated fair value of $469 and | ||||||||
$610 at December 31, 2009 and 2008, respectively) | 459 | 599 | ||||||
Loans | 700,750 | 741,938 | ||||||
Less allowance for loan losses | (9,462 | ) | (7,587 | ) | ||||
Net loans | 691,288 | 734,351 | ||||||
Premises and equipment, net | 15,487 | 14,985 | ||||||
Goodwill, net | 17,363 | 17,363 | ||||||
Intangible assets, net | 2,832 | 3,562 | ||||||
Other assets | 29,274 | 22,721 | ||||||
Total assets | $ | 1,095,155 | $ | 1,049,700 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Deposits: | ||||||||
Non-interest bearing | $ | 128,726 | $ | 119,986 | ||||
Interest bearing | 711,684 | 686,368 | ||||||
Total deposits | 840,410 | 806,354 | ||||||
Repurchase agreements with customers | 80,386 | 80,708 | ||||||
Other borrowings | 32,750 | 50,750 | ||||||
Junior subordinated debentures | 20,620 | 20,620 | ||||||
Other liabilities | 9,768 | 8,490 | ||||||
Total liabilities | 983,934 | 966,922 | ||||||
Stockholders’ Equity: | ||||||||
Preferred stock (no par value, authorized 1,000,000 shares; issued | ||||||||
4,927 shares in 2009) | 24,635 | - | ||||||
Common stock ($4 par value; authorized 18,000,000 shares; issued | ||||||||
7,364,959 shares in 2009 and 7,254,117 shares in 2008) | 29,460 | 29,017 | ||||||
Additional paid-in capital | 26,811 | 25,289 | ||||||
Retained earnings | 62,144 | 58,059 | ||||||
Deferred compensation | 2,894 | 2,787 | ||||||
Accumulated other comprehensive income (loss) | 464 | (416 | ) | |||||
Treasury stock at cost, 1,279,583 shares in 2009 | ||||||||
and 1,121,273 in 2008 | (35,187 | ) | (31,958 | ) | ||||
Total stockholders’ equity | 111,221 | 82,778 | ||||||
Total liabilities and stockholders’ equity | $ | 1,095,155 | $ | 1,049,700 |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||
(In thousands) (unaudited) | ||||||||
For the years ended December 31, | 2009 | 2008 | ||||||
Interest income: | ||||||||
Interest and fees on loans | $ | 42,146 | $ | 47,748 | ||||
Interest on investment securities | 9,036 | 8,559 | ||||||
Interest on federal funds sold & other deposits | 227 | 759 | ||||||
Total interest income | 51,409 | 57,066 | ||||||
Interest expense: | ||||||||
Interest on deposits | 12,970 | 16,592 | ||||||
Interest on repurchase agreements with customers | 129 | 872 | ||||||
Interest on other borrowings | 1,634 | 2,484 | ||||||
Interest on subordinated debt | 1,104 | 1,396 | ||||||
Total interest expense | 15,837 | 21,344 | ||||||
Net interest income | 35,572 | 35,722 | ||||||
Provision for loan losses | 3,594 | 3,559 | ||||||
Net interest income after provision for loan losses | 31,978 | 32,163 | ||||||
Non-interest income: | ||||||||
Trust revenues | 2,229 | 2,666 | ||||||
Brokerage commissions | 424 | 574 | ||||||
Insurance commissions | 1,912 | 1,978 | ||||||
Services charges | 4,952 | 5,571 | ||||||
Securities gains (losses), net | 637 | 293 | ||||||
Impairment losses on securities | (1,812 | ) | - | |||||
Mortgage banking revenues | 664 | 437 | ||||||
Other | 4,449 | 3,745 | ||||||
Total non-interest income | 13,455 | 15,264 | ||||||
Non-interest expense: | ||||||||
Salaries and employee benefits | 16,830 | 16,876 | ||||||
Net occupancy and equipment expense | 4,989 | 4,959 | ||||||
FDIC insurance | 1,943 | 158 | ||||||
Amortization of intangible assets | 730 | 766 | ||||||
Other | 8,720 | 8,701 | ||||||
Total non-interest expense | 33,212 | 31,460 | ||||||
Income before income taxes | 12,221 | 15,967 | ||||||
Income taxes | 4,007 | 5,443 | ||||||
Net income | $ | 8,214 | $ | 10,524 | ||||
Per Share Information (unaudited) | ||||||||
For the years ended December 31, | 2009 | 2008 | ||||||
Basic earnings per common share | $ | 1.04 | $ | 1.69 | ||||
Diluted earnings per common share | $ | 1.04 | $ | 1.67 | ||||
Book value per share at Dec 31 | $ | 14.23 | $ | 13.50 | ||||
Market price of stock at Dec 31 | $ | 17.50 | $ | 22.20 | ||||
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | ||||||||
(In thousands) (unaudited) | ||||||||
For the years ended December 31, | 2009 | 2008 | ||||||
Balance at beginning of period | $ | 82,778 | $ | 80,452 | ||||
Net income | 8,214 | 10,524 | ||||||
Dividends on preferred stock and common stock | (4,129 | ) | (2,360 | ) | ||||
Issuance of preferred and common stock | 26,382 | 1,960 | ||||||
Purchase of treasury stock | (3,122 | ) | (6,784 | ) | ||||
Deferred compensation and other adjustments | 218 | 498 | ||||||
Changes in accumulated other comprehensive income (loss) | 880 | (1,512 | ) | |||||
Balance at end of period | $ | 111,221 | $ | 82,778 |
CONSOLIDATED CAPITAL RATIOS | Threshold | |||||||
As of | for “Well- | |||||||
First Mid-Illinois Bancshares, Inc. | Dec 31, | Capitalized” | ||||||
Primary Capital Measurements (unaudited): | 2009 | Designation | ||||||
Leverage ratio | 10.63 | % | 5 | % | ||||
Tier 1 capital to risk-weighted assets | 14.57 | % | 6 | % | ||||
Total capital to risk-weighted assets | 15.76 | % | 10 | % |