First Mid Bancshares, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited consolidated results. Unless otherwise noted, dollar amounts below are in millions.
Business context
First Mid is a regional bank holding company with banking, wealth management and insurance operations. On August 15, 2023, it completed its acquisition of Blackhawk Bancorp, issuing 3.29 million First Mid shares valued at $93.5 million. Blackhawk contributed substantially to balance-sheet growth and affected year-over-year comparisons; its bank was expected to merge into First Mid Bank in December 2023.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net interest income | $50.4 | $48.3 | $136.0 | $138.6 |
| Provision for credit losses | $5.9 | $0.1 | $5.6 | $4.0 |
| Other income | $23.1 | $16.8 | $65.0 | $56.5 |
| Other expense | $47.1 | $41.5 | $128.7 | $123.5 |
| Net income | $15.1 | $17.9 | $50.9 | $52.3 |
| Diluted EPS | $0.68 | $0.88 | $2.40 | $2.60 |
- Q3 net income fell about 16% year over year; nine-month net income declined about 3%. Q3 net interest income improved, but higher provision and expenses more than offset the increase.
- Nine-month tax-equivalent net interest margin was 2.95%, down from 3.16%; management attributed the decline mainly to higher deposit and borrowing costs, partly offset by higher earning-asset yields. Nine-month net interest income was down $2.6 million, with Blackhawk acquisition and organic loan growth partly offsetting funding-cost pressure.
- Nine-month other income rose 15%, including $3.3 million of net securities gains, largely associated with post-acquisition balance-sheet restructuring. Insurance commissions also increased. Other expense rose 4%, reflecting acquisition-related operating costs, FDIC assessments, occupancy and intangible amortization. Blackhawk-related acquisition costs were $2.1 million for Q3 and $2.6 million year to date.
Financial position, cash flow and liquidity
- At September 30, total assets were $7.86 billion, compared with $6.74 billion at December 31, 2022. Net loans were $5.47 billion, up $699 million; total deposits were $6.35 billion, up $1.09 billion. Acquisition effects are significant in these comparisons.
- Cash and cash equivalents were $383 million, versus $152 million at year-end 2022. Nine-month cash provided by operating activities was $43.6 million; investing activities provided $412.6 million, including acquisition-related cash flows and securities sales; financing activities used $225.4 million. Cash-flow movements should be viewed in the context of the acquisition and portfolio repositioning.
- Borrowings included $365 million of FHLB advances, $215 million of repurchase agreements, $107 million of subordinated debt and $24 million of junior subordinated debentures. The company reported no balance on its $15 million revolving credit line and disclosed additional borrowing capacity supported by collateral.
- Management said liquidity was sufficient for operating needs. Approximately 99% of deposit accounts were below $250,000. Total commitments and lines of credit were $1.31 billion, with $22.7 million of standby letters of credit.
- Stockholders’ equity was $738 million. The available-for-sale securities portfolio had $254 million of gross unrealized losses and $179 million of after-tax accumulated other comprehensive loss. Securities sales generated $3.3 million in net gains year to date.
Credit, capital and other material developments
- Nonperforming loans were $21.3 million, or 0.38% of loans, versus $19.2 million at year-end 2022. Loans past due 30 days or more were 0.23% of loans. The allowance for credit losses was $68.2 million, 1.23% of loans; nine-month net charge-offs were $0.2 million. The nine-month provision included a $3.8 million initial allowance related to acquired Blackhawk non-PCD loans.
- Loan exposures include $580.5 million to agriculture-related borrowers, including $452.9 million in other grain farming; $227.2 million to hotels and motels; and $1.08 billion to lessors of non-residential buildings. Management cited crop prices, drought and yields, travel activity, borrower cash flows and commercial property conditions as relevant credit risks.
- The company reported a 10.19% Tier 1 risk-based capital ratio and a 12.60% total risk-based capital ratio, both lower than at year-end 2022, primarily due to the Blackhawk acquisition. The filing says First Mid Bank and Blackhawk Bank qualified as well-capitalized under the prompt-corrective-action framework. The Blackhawk Bank table reports a 10.04% total risk-based ratio; the filing also shows a 10.50% minimum capital-adequacy level, making the subsidiary’s reported status and applicable thresholds worth checking.
- Management reported the company’s disclosure controls were effective and no material change in internal control over financial reporting during the quarter. Ordinary-course litigation was not expected by management to have a material adverse effect. No specific earnings or margin guidance was provided.
Investor verification priorities
- Track deposit pricing, deposit mix and funding costs, and whether net interest margin stabilizes as rates and balance-sheet composition change.
- Review Blackhawk integration progress, expected synergies and expenses, completion of the planned bank merger, and the acquired bank’s capital position and regulatory classification.
- Monitor commercial real estate, agriculture and hotel loan performance, nonperforming loans, criticized loan trends, charge-offs and allowance adequacy.
- Assess liquidity and funding concentration alongside the $1.31 billion of off-balance-sheet commitments, FHLB capacity and scheduled debt maturities.
- Evaluate the size and duration of unrealized securities losses, the effects of further securities sales, and capital ratios after acquisition-related changes.