First Mid Bancshares, Inc. — Q1 2022 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2022; balance-sheet comparisons are with December 31, 2021 unless noted. First Mid is a regional banking and financial-services company. The quarter includes the February 14, 2022 acquisition of Delta Bancshares Company, which added Jefferson Bank. Management anticipated merging Jefferson Bank into First Mid Bank in Q2 2022.
Key financial results
| Metric | Q1 2022 | Comparable period / date |
|---|---|---|
| Net interest income | $43.5 million | $36.8 million in Q1 2021 |
| Net interest margin, tax-equivalent | 3.07% | 3.16% in Q1 2021 |
| Net income / diluted EPS | $16.6 million / $0.86 | $4.1 million / $0.24 in Q1 2021 |
| Provision for loan losses | $3.0 million | $12.1 million in Q1 2021 |
| Other income / other expense | $21.1 million / $40.4 million | $17.7 million / $37.6 million in Q1 2021 |
| Total assets | $6.63 billion | $5.99 billion at Dec. 31, 2021 |
| Loans, net of allowance | $4.39 billion | $3.94 billion at Dec. 31, 2021 |
| Total deposits | $5.49 billion | $4.96 billion at Dec. 31, 2021 |
| Cash and cash equivalents | $224.0 million | $168.6 million at Dec. 31, 2021 |
| Total stockholders’ equity | $666.4 million | $633.9 million at Dec. 31, 2021 |
| Regulatory capital ratios, consolidated | Tier 1: 12.42%; total capital: 15.41% | 12.51% and 15.79%, respectively, at Dec. 31, 2021 |
Net income growth reflected higher net interest income and noninterest income, as well as a substantially lower loan-loss provision. The prior-year provision included an $11.5 million initial provision for LINCO-acquired loans; Q1 2022 included a $2.0 million initial provision related to Jefferson Bank. Q1 2022 net interest income also benefited from the acquisition. The effective tax rate was 21.9%, versus 14.0% in Q1 2021.
Cash flow, funding, and credit
- Operating cash flow was $24.1 million; investing activities provided $63.9 million, including $67.3 million of net cash from the acquisition; financing activities used $32.6 million. Cash and cash equivalents increased $55.4 million during the quarter.
- Borrowings at quarter-end included $187.3 million of repurchase agreements, $126.4 million of FHLB borrowings, $94.4 million of subordinated debt, and $19.2 million of junior subordinated debentures. Repurchase agreements are overnight obligations. The company reported $427.4 million in total borrowings under its MD&A presentation.
- Management said liquidity was sufficient and estimated total available liquidity sources of $2.4 billion. Disclosed sources include $100 million in overnight federal-funds lines, approximately $721 million of additional FHLB borrowing capacity subject to collateral, and an undrawn $15 million corporate line of credit.
- Nonperforming loans were $22.5 million, or 0.50% of loans, versus $22.0 million at year-end 2021 and $32.0 million at March 31, 2021. The allowance was $58.5 million, or 1.31% of loans; Q1 net recoveries were $4,000.
- Commitments to extend credit and unused lines totaled $1.21 billion, with $19.1 million of standby letters of credit. These are off-balance-sheet exposures, not funded loans.
Material changes, outlook, and risks
- The Delta acquisition added approximately $750 million of assets and $561 million of deposits at fair value, funded with $15.2 million cash and 2,292,270 First Mid shares. The company recorded $28.6 million of provisional goodwill and $5.9 million of core deposit intangible; purchase accounting remained subject to refinement. Q1 included $535,000 of Delta acquisition costs.
- Available-for-sale securities recorded an after-tax unrealized loss of $73.2 million in other comprehensive income. Gross unrealized losses rose to $107.5 million from $18.3 million at year-end; management did not consider the losses other-than-temporary but noted future impairment charges remain possible. This loss substantially reduced accumulated other comprehensive income.
- Management gave no specific earnings or financial-ratio guidance. It described the company’s financial position and underlying earning capacity as strong, while expecting credit reserves to remain elevated relative to recent historical trends given economic uncertainty.
- Interest-rate risk merits attention: the company’s cumulative gap position was liability-sensitive through 12 months, and management said rising rates could adversely affect net interest income. Net interest margin had already declined year over year, primarily due to lower yields on loans and investments.
- Credit exposures include agriculture (including $402.7 million to agriculture-related borrowers), hotels and motels ($208.8 million), and commercial and residential property lessors. Management cited risks from weaker commodity prices, drought or lower yields, and prolonged declines in business or personal travel. COVID-19 effects and broader economic uncertainty could also affect borrowers, collateral values, liquidity, and asset impairment.
- Capital ratios remained above stated regulatory minimums; the company said it and its bank subsidiaries met capital adequacy requirements. Ordinary-course litigation was not expected by management to have a material adverse effect. Disclosure controls were reported effective, with no material change in internal control over financial reporting.
Important facts for investors to verify
- How Jefferson Bank integration and the planned bank merger progress, and whether the expected acquisition benefits materialize without higher-than-expected costs.
- Whether the sharp increase in unrealized securities losses recovers or leads to realized losses, impairment, or further pressure on equity and regulatory capital.
- Loan performance and allowance adequacy, especially in agriculture, hotels, and commercial real estate, as economic conditions and interest rates change.
- Deposit stability, funding costs, liquidity availability, and the effect of the liability-sensitive position on future net interest income and margin.
- How much reported earnings growth is sustainable after accounting for acquisition effects, lower prior-year provision expense, and one-time or transaction-related items.