First Mid Announces:
* Third Consecutive Record Annual Earnings
* Growth in Earnings Per Share
* Strength in Asset Quality Metrics
* Successful Executive Succession Transition
I am pleased to announce that First Mid-Illinois Bancshares, Inc. completed a very successful 2013. Our net income, earnings per share, and total assets finished at all-time highs and we continued to have strong asset quality ratios. We also successfully completed a succession plan, which I will discuss later in the report.
From a financial perspective, net income for 2013 was $14,722,000 compared to $14,025,000 for 2012 which tops our highest net income for the third year in a row. Diluted earnings per share increased 6.8% to $1.73 per share compared to $1.62 per share for 2012.
Net income was higher than last year as net interest income increased due to growth in loan balances and sustained low funding costs, the provision for loan losses was reduced given lower non-performing assets and net charge-offs and non-interest income increased as a result of more gains recognized on the sale of securities and greater trust and brokerage revenues.
Net interest income was $49.9 million for 2013 compared to $49.6 million for 2012. This was due to growth in the balance sheet with greater balances of loans and deposits. Loan balances increased 7.9% from $911 million at December 31, 2012 to $983 million at December 31, 2013. This increase was primarily due to growth in commercial real estate and agricultural real estate loans. Deposit balances increased $13.6 million during 2013 with higher checking and time deposit account balances. The growth in the balance sheet helped to offset a decline in the net interest margin. The net interest margin on a tax-equivalent basis was 3.47% in 2013 compared to 3.51% in 2012. The current flat yield curve has been mentioned in previous letters. The spread between the interest rate received on loans and the amount paid on deposits and borrowings continues to be “squeezed” as we remain in this historically-low interest rate environment. While there was an increase in intermediate-term treasury rates during 2013 that impacted mortgage rates, the rate increase has not translated to increased yields on commercial loans as pricing for quality borrowers remains ultra-competitive. We have maintained our low funding costs in 2013 which helped reduce the impact of the reduction in rate spread. Many community banks saw a more significant margin decline and had less balance sheet growth. We are pleased that while we held down our funding costs, we were able to increase loan and deposit balances through further expansion of customer relationships.
The provision for loan losses decreased to $2.2 million in 2013 compared to $2.6 million in 2012. Non-performing loans and other real estate owned balances declined to $7.0 million at December 31, 2013 compared to $8.8 million at December 31, 2012. Net loan charge-offs amounted to $.7 million in 2013, down from $2.0 million charged-off in 2012. The improvement in these two metrics allowed us to reduce the provision for loan losses. Also, the balance of allowance for loan losses increased to $13.2 million as of December 31, 2013 and we continue to have a strong coverage ratio of the allowance for loan losses to the level of non-accrual loans of 216%.
Non-interest income also increased in 2013 to $19.3 million compared to $18.3 million in 2012. During 2013, we had more gains on the sale of securities primarily due to the sale of two trust preferred securities which resulted in a gain of $1.4 million. These securities were comprised of community bank debt issuances and have increased in value as the banking industry recovers from the recession. In addition to security gains, revenues from trust and wealth management also increased by $380,000 due to increased revenue from the retirement services area and more growth through the brokerage platform. These increases offset the decline in mortgage banking income during the year as refinances slowed with the increase in interest rates.
Operating expenses increased less than 2% during 2013 to $43.5 million compared to $42.8 million in 2012 with increases primarily in salaries due to additions to our sales staff and employees added for a new branch location in Decatur.
Our regulatory capital ratios remain strong and are considered in excess of well-capitalized by regulatory definition. Despite the 2013 earnings added to capital (an increase in retained earnings), our Tier 1 capital and Total capital ratios at December 31, 2013 were slightly below the ratios in 2012. This was primarily due to the mark-to-market entry for securities (a decrease in accumulated other comprehensive income) resulting from the rise in intermediate interest rates during 2013. Most banks experienced a decline in market value of securities from the interest rate increase in 2013.
The following information was filed by First Mid Illinois Bancshares Inc (FMBH) on Thursday, January 30, 2014 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-K Annual Report statement of earnings and operation as management may choose to highlight particular information in the press release.