First Mid Bancshares, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter earnings report. First Mid is a financial holding company operating banking, insurance, and wealth-management businesses, principally across Illinois, Missouri, and Texas.
Financial performance and position
| Metric | 2022 | 2021 |
|---|---|---|
| Net interest income | $184.3 million | $167.8 million |
| Noninterest income | $74.7 million | $69.8 million |
| Noninterest expense | $162.9 million | $155.6 million |
| Provision for loan losses | $4.8 million | $15.2 million |
| Net income | $73.0 million | $51.5 million |
| Diluted earnings per share | $3.60 | $2.87 |
| Net interest margin, tax-equivalent | 3.13% | 3.21% |
| Return on average assets | 1.11% | 0.90% |
| Return on average common equity | 11.38% | 8.38% |
- Balance sheet at year-end: Assets were $6.74 billion, net loans $4.77 billion, deposits $5.26 billion, and stockholders’ equity $633.2 million.
- Credit quality: Nonperforming loans were $19.2 million, or 0.40% of loans, versus $22.0 million, or 0.55%, in 2021. The allowance for credit losses was $59.1 million, 1.22% of loans; net charge-offs were $1.2 million.
- Cash flow: Operating activities provided $65.8 million; investing activities used $178.7 million; financing activities provided $96.7 million. Cash and cash equivalents declined $16.2 million to $152.4 million.
- Borrowings: Repurchase agreements, FHLB advances, subordinated debt, and junior subordinated debentures totaled $800.4 million at year-end, up from $346.3 million. FHLB advances were $465.1 million; the parent’s $15 million revolving credit line was undrawn.
- Capital: Consolidated total risk-based capital was 15.20%, Tier 1 risk-based capital 12.40%, and common equity Tier 1 12.03%. The bank was categorized as well-capitalized.
- Investment portfolio and equity: Available-for-sale securities had $213.5 million of gross unrealized losses at year-end. The resulting after-tax other comprehensive loss was $150.7 million, and accumulated other comprehensive loss was $151.5 million.
Material changes versus 2021
- Net income rose $21.5 million, or about 42%; diluted EPS increased from $2.87 to $3.60. Lower loan-loss provision contributed to the improvement, alongside higher net interest and noninterest income.
- Total assets grew from $5.99 billion to $6.74 billion, and net loans increased about $829 million. The February 2022 acquisition of Delta Bancshares/Jefferson Bank contributed approximately $418.5 million of acquired loans and $560 million of deposits.
- Net interest margin declined 8 basis points as interest-bearing deposit and borrowing costs rose; management also cited lower loan accretion income. Interest expense increased to $31.6 million from $15.3 million.
- Noninterest income increased 7.0%, with growth in wealth management, insurance commissions, and service charges partly offset by lower mortgage banking revenue. Noninterest expense rose 4.7%, primarily reflecting acquisition-related operations and staffing.
- Stockholders’ equity was nearly flat despite $73.0 million of net income and $17.8 million of dividends, largely because the decline in available-for-sale securities’ market value reduced equity by $150.7 million after tax. The 2022 dividend declared was $0.90 per share, up from $0.85.
Outlook, risks, and unusual items
- The filing provides no specific earnings, margin, or growth guidance. Management describes its strategy as organic growth and selective acquisitions, while emphasizing balance-sheet strength and risk management.
- Management said liquidity was sufficient. Available sources included $100 million of overnight federal-funds lines, approximately $582.1 million of additional FHLB borrowing capacity supported by excess collateral, Federal Reserve borrowing subject to collateral, and the undrawn $15 million parent-company line. These sources remain subject to terms and availability.
- Interest-rate exposure is material. Static gap analysis showed cumulative liability sensitivity through one year. The filing’s modeled scenarios indicated a 200-basis-point rate increase would reduce annual net interest income by $0.3 million; results are estimates and exclude management responses. The company also reported a potential decline in economic value of equity under rising-rate scenarios.
- Credit risks include commercial real estate and geographic/industry concentrations. Commercial real estate represented 42.1% of loans; the company also identified significant exposures to grain farming, building lessors, and hotels and motels. Deteriorating real estate values, agricultural conditions, or local economies could increase losses.
- The filing identifies deposit competition and withdrawals, higher funding costs, securities-value declines, cybersecurity and third-party operational risks, regulatory change, climate/ESG matters, and acquisition integration as material risks. The $150.7 million after-tax securities valuation loss is reflected in accumulated other comprehensive loss; management stated that available-for-sale securities were not considered impaired for credit reasons.
- Delta acquisition consideration included approximately $15.2 million in cash and 2,292,270 First Mid shares; the company recorded $28.6 million of goodwill and about $2.5 million of pretax acquisition costs. Management reported no goodwill impairment in its September 2022 annual test.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The allowance for credit losses was identified as a critical audit matter. Management reported effective disclosure controls and internal control; ordinary-course litigation was not considered material.
Important facts for investors to verify
- How deposit pricing, deposit mix, and funding costs evolve as rates change, and whether the 2022 margin decline continues.
- The composition and duration of the securities portfolio, the trajectory of unrealized losses, and any effect on tangible capital or liquidity if securities must be sold.
- Credit performance and collateral values in commercial real estate, agriculture, and hotel/motel exposures; compare classified loans, delinquencies, and the allowance with subsequent disclosures.
- FHLB advance maturities and costs, repurchase-agreement funding, and the sustainability of liquidity under deposit outflows or increased customer borrowing.
- Whether Jefferson Bank integration produces expected revenue and cost benefits, and whether acquisition-related goodwill or other intangible assets require impairment.
- Reconcile reported cash-flow movements, acquisition accounting, and the increase in borrowings with subsequent quarterly filings; assess dilution from acquisition share issuance and ongoing stock compensation.