First Mid Bancshares, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter report. The company is a financial holding company with community banking, insurance, wealth management and related operations, primarily in Illinois and neighboring markets.
Financial performance and position
| Metric | 2020 | 2019 |
|---|---|---|
| Total assets, year-end | $4.73 billion | $3.84 billion |
| Total loans, year-end | $3.14 billion | $2.70 billion |
| Total deposits, year-end | $3.69 billion | $2.92 billion |
| Net interest income | $127.4 million | $125.7 million |
| Provision for loan losses | $16.1 million | $6.4 million |
| Noninterest income | $59.5 million | $56.0 million |
| Noninterest expense | $111.1 million | $112.0 million |
| Net income | $45.3 million | $47.9 million |
| Diluted earnings per share | $2.70 | $2.87 |
| Tax-equivalent net interest margin | 3.27% | 3.64% |
| Return on average assets | 1.05% | 1.25% |
| Return on average common equity | 8.24% | 9.49% |
- Cash flow: Operations provided $63.5 million; investing activities used $562.4 million; financing activities provided $831.1 million. Cash and cash equivalents rose $332.2 million to $417.3 million.
- Credit quality: Allowance for credit losses was $41.9 million, or 1.34% of loans, versus $26.9 million, or 1.00%, in 2019. Nonperforming loans were $28.1 million, or 0.90% of loans, compared with $27.8 million, or 1.03%. Net charge-offs were $2.8 million, down from $5.7 million.
- Capital: Consolidated total risk-based capital was 18.82%, Tier 1 was 14.63%, common equity Tier 1 was 14.03%, and leverage was 10.22%. First Mid Bank also exceeded regulatory well-capitalized thresholds.
- Debt and liquidity: Year-end borrowings totaled $414.2 million, including $94.3 million of new subordinated notes, $94.0 million of FHLB advances, $206.9 million of repurchase agreements and $19.0 million of junior subordinated debentures. Management reported $1.7 billion of total available liquidity capacity. The $15 million revolving credit line was undrawn.
- Dividends: Declared common dividends were $0.81 per share, versus $0.76 in 2019. The bank had approximately $46.2 million available for dividends to the parent, subject to regulatory limits.
Material changes versus 2019
- Net income fell $2.7 million, or about 5.6%, and diluted EPS declined $0.17. Higher net interest income and noninterest income were more than offset by a $9.7 million increase in loan-loss provision.
- Net interest margin contracted 37 basis points, principally from lower interest rates and less acquisition-related accretion income. Net interest income nonetheless increased 1.4%, supported by earning-asset growth and lower funding costs.
- Assets grew 23%, loans 16%, and deposits 27%. Growth included $183 million of loans acquired from Stifel Bank and $168.3 million of PPP loans. Deposit growth reflected acquired customer balances, stimulus payments and PPP proceeds.
- Noninterest income increased 6.3%, including higher mortgage banking, insurance and wealth management revenue; service-charge revenue declined. Noninterest expense edged down 0.8%.
- The company adopted the CECL credit-loss standard on January 1, 2020, recording a $1.7 million increase in the loan allowance and a $717,000 reduction to retained earnings after tax.
Outlook, commentary and risks
- Management described the existing business’s earning capacity and the company’s capital and liquidity positions as strong, but expected credit reserves to remain elevated given COVID-19 uncertainty. The filing provides no quantified earnings or margin guidance.
- At year-end, $57.4 million of loans had been deferred under customer accommodation programs. The company had 1,846 outstanding PPP loans totaling $168.3 million; forgiveness was expected for most, but was not assured.
- Key credit exposures include real-estate-secured loans totaling about $2.1 billion, agriculture-related borrowers, hotels and motels, and commercial property lessors. Management cited pandemic-related borrower stress, collateral values and economic conditions as sources of potential loss.
- Interest-rate risk remains material. The filing’s economic-value-of-equity analysis showed a 14.9% decline under a 100-basis-point rate decrease, outside the company’s stated usual 10% policy limit; the 200-basis-point decrease scenario showed a 17.4% decline. These are model estimates, not forecasts.
- On October 6, 2020, the company issued $96 million principal amount of unsecured subordinated notes due 2030, initially bearing 3.95% interest and floating after October 2025.
- After year-end, the company completed its acquisition of LINCO Bancshares/Providence Bank on February 22, 2021, for $103.5 million in cash and 1,262,246 shares, in addition to a $13 million special dividend paid by LINCO to its shareholders. The filing said acquisition accounting was incomplete; the Providence Bank merger into First Mid Bank was anticipated for the second quarter of 2021.
- Other risks include cyber and third-party operational disruption, regulatory change, acquisition integration, potential goodwill impairment and dependence on local economic conditions. Management reported no material litigation expected to adversely affect the company. The financial-statement audit opinion was unqualified, and management and the auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- How CECL assumptions, pandemic-related borrower performance and deferred-loan status affect future provisions, charge-offs and nonperforming assets.
- Whether PPP loans are forgiven as expected and how repayment or forgiveness affects reported loan balances and income.
- The final purchase accounting, integration costs, expected benefits and capital effects of the Providence Bank acquisition.
- Whether net interest margin stabilizes, particularly given rate sensitivity and reduced acquisition accretion income.
- The composition and availability of reported liquidity capacity, and the effect of deposit mix, public funds and short-term repurchase funding.
- Whether credit concentrations in commercial real estate, agriculture, hotels and other exposed industries deteriorate, and whether capital and reserves remain adequate.