First Mid Bancshares, Inc. — Q1 2024 Form 10-Q
Business context and reporting period. This unaudited filing covers the three months ended March 31, 2024, with balance-sheet comparisons to December 31, 2023 and income and cash-flow comparisons to Q1 2023. First Mid is a one-segment bank holding company operating through banking, wealth management and insurance subsidiaries. Results include Blackhawk, acquired in August 2023; Blackhawk Bank was merged into First Mid Bank in December 2023, making year-over-year comparisons reflect the enlarged company.
Financial performance and condition
- Profit and earnings: Net income was $20.5 million, up 6.9% from $19.2 million. Diluted EPS was $0.86 versus $0.93, as weighted-average diluted shares increased to 24.0 million from 20.6 million, primarily reflecting the acquisition-related share issuance. Return on average assets was 1.07% and return on average common equity was 10.37%.
- Interest income and margin: GAAP net interest income was $55.5 million, up 28.4% from $43.2 million. Tax-equivalent net interest income was $56.1 million versus $43.9 million; tax-equivalent net interest margin improved to 3.25% from 2.94%. Management attributed the improvement chiefly to higher earning-asset yields, partly offset by higher deposit and borrowing costs.
- Other revenue and expenses: Other income rose 8.9% to $24.5 million, led by insurance commissions, service charges, ATM/debit-card revenue and mortgage banking. Other expense increased 28.3% to $53.4 million, primarily reflecting Blackhawk-related scale, intangible amortization and acquisition costs. Acquisition costs were $2.2 million, versus $93,000 in Q1 2023.
- Credit costs: The provision for credit losses was a benefit of $357,000, compared with a benefit of $817,000 a year earlier. Net charge-offs were $382,000, versus $53,000. The allowance was $67.9 million, or 1.24% of loans at amortized cost.
- Assets, loans and deposits: Total assets were $7.68 billion, up from $7.59 billion at year-end. Net loans were $5.43 billion, down from $5.51 billion; deposits were $6.24 billion, up from $6.12 billion. Loans secured by real estate represented 69.3% of the loan portfolio.
- Cash flow and liquidity: Operating cash flow was $29.0 million; investing activities provided $97.4 million and financing activities provided $86.2 million. Cash and cash equivalents rose $212.6 million to $355.7 million. Management said liquidity was sufficient; disclosed capacity included $120 million of overnight federal-funds lines, approximately $1.68 billion of additional FHLB borrowing supported by excess collateral, and an unused $15 million revolving line.
- Debt and capital: Repurchase agreements, FHLB advances, subordinated debt and junior subordinated debentures totaled approximately $580.5 million. Stockholders’ equity was $798.0 million. The company reported a 12.46% Tier 1 risk-based capital ratio and 15.35% total risk-based capital ratio; First Mid Bank met the regulatory “well-capitalized” thresholds.
Material changes and investor considerations
- Average loans increased 15.4% and average interest-bearing deposits increased 24.2% year over year, with Blackhawk contributing to the larger balance sheet and higher net interest income.
- Higher deposit pricing was evident in the average cost of interest-bearing deposits, which rose to 2.20% from 1.35%; average loan yield increased to 5.67% from 4.78%.
- Available-for-sale securities had a fair value of $1.14 billion versus $1.17 billion at year-end. Gross unrealized losses were $204.1 million, and accumulated other comprehensive loss was $147.7 million, up from $136.4 million. Most unrealized losses had persisted for at least 12 months.
- Nonperforming loans were $20.1 million, broadly unchanged from year-end but above $15.2 million a year earlier. Loans 30 or more days past due were 0.32% of loans, versus 0.26% at year-end.
- Credit concentrations warrant attention: the company reported $602.9 million of loans to agriculture-related borrowers, including $488.5 million in other grain farming, and $1.06 billion to lessors of non-residential buildings. Management cited potential risks from low commodity prices, drought, reduced crop yields, commercial real-estate uncertainty and loan repricing.
- The filing says the company was cumulatively liability-sensitive through the 12-month horizon in its static gap analysis, so future rate increases could adversely affect net interest income. Management also uses additional interest-rate models and reviews exposure at least monthly.
Outlook, risks and contingencies
The filing provides no specific earnings, margin or growth guidance. Management states that Q1 results are not necessarily indicative of full-year results. Forward-looking outcomes depend on interest rates, economic and regional conditions, credit quality, deposit flows, competition, regulation and realization of Blackhawk merger benefits. Commitments to extend credit and unused lines totaled approximately $1.30 billion; standby letters of credit were $16.8 million. Management does not anticipate losses from these commitments. Ordinary-course litigation was not considered likely to have a material adverse effect, though outcomes cannot be predicted with certainty.
Most important facts to verify
- Whether higher deposit costs and deposit mix affect margin and earnings in subsequent quarters.
- Credit trends in commercial real estate, agriculture and criticized or past-due loans, alongside the adequacy of the allowance and charge-offs.
- How the unrealized securities losses, securities liquidity and interest-rate exposure evolve.
- Blackhawk integration progress, recurring expense levels and the company’s ability to realize expected merger benefits.
- Liquidity and funding needs, including deposit stability, upcoming FHLB maturities and the potential use of off-balance-sheet commitments.
- Whether capital ratios remain comfortably above regulatory requirements as CECL transition relief phases out.