First Mid Bancshares, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with 2022. This is an annual report, not a standalone fourth-quarter earnings filing.
Business context and notable events
First Mid is a financial holding company providing banking, insurance, wealth management, trust, and related services, principally through First Mid Bank & Trust. On August 15, 2023, it acquired Blackhawk Bancorp in a stock transaction valued at approximately $93.5 million; Blackhawk Bank was merged into First Mid Bank on December 1. The acquisition added approximately $1.19 billion of deposits and $730 million of loans, after purchase accounting adjustments. First Mid also acquired insurance agency PGIB during 2023.
Key financial metrics
| Metric | 2023 | 2022 |
|---|---|---|
| Net income | $68.9 million | $73.0 million |
| Diluted earnings per share | $3.15 | $3.60 |
| Net interest income | $193.5 million | $184.3 million |
| Noninterest income | $86.8 million | $74.7 million |
| Noninterest expense | $185.7 million | $162.9 million |
| Provision for credit losses | $6.1 million | $4.8 million |
| Return on average assets | 0.97% | 1.11% |
| Return on average common equity | 10.10% | 11.38% |
| Tax-equivalent net interest margin | 3.05% | 3.13% |
Balance sheet at year-end: Total assets were $7.59 billion, up from $6.74 billion; net loans were $5.51 billion, up from $4.77 billion; and deposits were $6.12 billion, up from $5.26 billion. Stockholders’ equity was $793.2 million versus $633.2 million.
Credit and capital: Nonperforming loans were $20.1 million, or 0.36% of loans, compared with $19.2 million, or 0.40%, in 2022. Net charge-offs were $0.3 million versus $1.2 million. The allowance for credit losses was $68.7 million, or 1.23% of loans. Consolidated regulatory capital ratios were 14.84% total risk-based, 12.02% Tier 1 risk-based, 11.62% common equity Tier 1, and 9.33% leverage; the bank was categorized as well-capitalized.
Liquidity, debt, and cash flow: Cash and cash equivalents were $143.1 million, down from $152.4 million. Operating activities provided $72.4 million; investing activities provided $474.4 million; financing activities used $556.2 million. Cash and cash equivalents declined $9.4 million during the year. Year-end borrowings included $263.8 million of FHLB advances, $213.7 million of customer repurchase agreements, $106.8 million of subordinated debt, and $24.1 million of junior subordinated debentures. The company reported $120 million of overnight federal-funds lines, approximately $856 million of additional FHLB advance capacity subject to collateral, and an unused $15 million parent-company revolver.
Other metrics: The company declared $0.92 per common share in dividends, compared with $0.90 in 2022. Assets under wealth management were $6.1 billion, up from $5.3 billion.
Material changes versus 2022
- Net income fell $4.0 million and diluted EPS declined $0.45, despite higher net interest income and noninterest income. Higher funding costs and expenses were key pressures.
- Interest expense rose to $106.7 million from $31.6 million, with the average cost of interest-bearing deposits increasing to 1.82% from 0.48%. Management said funding costs rose faster than earning-asset yields; net interest margin declined to 3.05% from 3.13%.
- Noninterest expense increased 14% to $185.7 million, reflecting the Blackhawk acquisition, integration costs, higher personnel and FDIC insurance costs, and greater intangible amortization. Blackhawk-related acquisition costs were $8.2 million pretax.
- Noninterest income increased 16.2%, with higher insurance commissions, service charges, ATM/debit revenue, and $3.4 million of net securities gains. Wealth management revenue declined 7.6%, attributed mainly to lower commodity prices and higher interest rates affecting farm management income.
- Loans and deposits grew substantially, primarily through Blackhawk. At the same time, regulatory capital ratios declined from 2022 levels, which management attributed primarily to the acquisition.
- Available-for-sale securities had $193.5 million of gross unrealized losses at year-end; accumulated other comprehensive loss was $136.4 million after tax, an improvement from $151.5 million in 2022.
Outlook, risks, contingencies, and unusual items
- The filing provides no specific earnings, growth, or margin guidance. Management emphasizes acquisition-led and organic growth, maintaining a strong balance sheet, and managing interest-rate and liquidity risk.
- Interest-rate exposure remains notable: management’s model estimated that a 100-basis-point prime-rate increase would reduce net interest income by $1.6 million (0.85%), and a 200-basis-point increase by $4.5 million (2.32%), before management actions. The filing cautions that these are scenario estimates, not forecasts.
- Credit risks include concentrations in commercial real estate and agriculture. Real-estate-secured loans were $3.84 billion, about 69% of reported total loans; loans to grain farming borrowers were $472.5 million. Management identifies property values, agricultural prices and costs, and economic conditions as potential drivers of credit losses.
- Available-for-sale securities’ unrealized losses may affect equity and liquidity if securities are sold; the filing also identifies potential impairment risk. Goodwill was not impaired in 2023, but management notes that adverse valuation changes could lead to future impairment charges.
- Off-balance-sheet commitments totaled $1.32 billion, including unused credit commitments and lines; standby letters of credit were $17.4 million. Management stated it did not anticipate losses from these instruments. Ordinary-course litigation was not believed to be material, though outcomes cannot be predicted with certainty.
- The auditor issued an unqualified opinion on the financial statements and internal controls; the allowance for credit losses was identified as a critical audit matter because it involves significant estimates and judgment.
Investor verification priorities
- Assess whether Blackhawk integration delivers expected earnings and cost benefits, and distinguish recurring operating costs from acquisition and integration expenses.
- Track deposit retention, deposit pricing, uninsured and large time-deposit balances, and reliance on wholesale funding as interest rates and competition change.
- Review commercial real estate and agricultural loan performance, criticized/classified balances, collateral values, and allowance adequacy; focus on the disclosed industry concentrations.
- Evaluate the duration, unrealized losses, liquidity, and potential sale implications of the available-for-sale securities portfolio.
- Reconcile reported cash flows with acquisition-related balance-sheet growth and monitor capital ratios, debt costs, FHLB maturities, and dividend capacity.
- Compare future results with the filing’s interest-rate sensitivity scenarios, while recognizing that the company provided no formal forward earnings guidance.