A message from our Chairman, Ronald T. Barnes:

August 16, 2010

 

Dear Shareholder:

   Midwest BankCentre produced solid results for the first six months of 2010 despite the still lackluster economy and a banking industry saddled with many challenges.

   Consolidated earnings and income.  Consolidated net income for the second quarter ending June 30, 2010, totaled $1.6 million, inching 0.3% ahead of the same quarter in 2009 for a $5,000 increase.   Consolidated earnings of $3.3 million for the first two quarters dipped 2.3% for a decline of $77,000 compared with the same six-month span in 2009. 

   Net interest income increased over $1.0 million dollars in the first six months as a result of earning asset growth and improving margin and FDIC insurance expense declined $427,000 in 2010 as the second quarter of 2009 was levied a special 10 basis point charge.  The positive factors were offset by the following:

 

1.    Mortgage banking revenue decline of $300,000.

2.    Stock option expense of $500,000.  (Our stock option program has played an integral role in retaining the best banking talent within the St. Louis banking community).

3.    One-time expenses totaling $429,000 tied to closing our Rockford, Illinois branch office.

4.    An increase of $372,000 in the provision for loan loss in response to the challenging economic climate.

   Deposit Growth.  Midwest BankCentre has attracted a surge in deposits, growing by $38.7 million to $788 million for a 5.2% rise as of June 30, 2010, compared to total deposits at mid-year in 2009.  Midwest BankCentre has retained the Bauer Financial 5 Star Superior Rating, the highest available, for the 38^th consecutive quarter – nine-and-a-half years!  We are grateful to existing customers for choosing Midwest BankCentre for more of their deposits and to new customers for selecting our bank to safeguard their funds.

   Capital Position.  Another positive indicator is the $7.7 million growth in Midwest BankCentre shareholder equity to $116.5 million, up from $108.8 million a year earlier.  This places our risk-based capital ratio on June 30, 2010, at 15.3% versus 14.4% a year earlier, and ranks Midwest BankCentre in the top tier of national peer banks for this measure of financial strength.

   Loan Report.  Perhaps the best real-time glimpse into the pace of economic recovery is expressed by trends in loan demand and new loan business.  While up slightly from 2009, loan demand remains weak.  Our new loan approvals year-to-date are running 40% ahead of 2009, but still fall far below the tempo of pre-recession levels.  Despite this ramp-up, loans and leases net of unearned income and reserves declined by a total of $15.5 million or 2.4% from the prior year to $637 million.  This trend reflects a promising catch-22 in that both business owners and consumers are exercising the self-discipline of debt reduction while reducing new debt obligations.  Ultimately, this trend may strengthen the financial position of businesses and consumers to be used to full advantage in the future.  Though we would relish increased loan demand, we do not see this trend changing in the near-term future.

   Likewise, we are guarding against the dangers of potential loan losses by continuing to build our loan loss reserve.  For the first six months of 2010, we added an additional $1.722 million in loan loss provision expense compared to $1.350 million in the same period in 2009.  While this is a very conservative approach, we believe it is a prudent strategy in light of the many indicators we review.  We are encouraged that net loan losses year-to-date total $523,000 or 0.16% of total loans, down by $25,000 from $548,000 or 0.17% of total loans at June 30, 2009.   Our reserve for loan losses as a percentage of total loans equaled 2.28% as compared to 2.06% a year ago.  Non-performing assets total 0.53% of total loans and ORE as compared to 0.48% a year earlier.  The loan loss reserve now covers 5.4x total non-performing loans versus last year’s coverage of 5.2x, while the banking industry as a whole continues to cover its non-performing loans less than 1x.

   While economic and industry challenges remain, Midwest BankCentre team members remain focused on serving our existing as well as new customers who appreciate our strength and stability.

   I am pleased to report that the Board of Directors has declared a regular quarterly dividend of $.25 per share payable September 1, 2010, to shareholders of record August 1, 2010.  Thank you for contributing your support and confidence to our efforts.

Sincerely,

 

MIDWEST BANKCENTRE

Rated Superior for Strength and Stability

 

Ronald T. Barnes

President