First Mid Bancshares, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed March 6, 2020. The company is a regional financial holding company, with community banking as its largest business line (about 83% of revenue), alongside wealth management and insurance brokerage.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Net interest income | $125.7 million | $111.7 million |
| Noninterest income | $56.0 million | $35.4 million |
| Provision for loan losses | $6.4 million | $8.7 million |
| Noninterest expense | $112.0 million | $90.0 million |
| Net income | $47.9 million | $36.6 million |
| Diluted EPS | $2.87 | $2.52 |
| Net interest margin, tax-equivalent | 3.64% | 3.79% |
| Total assets at year-end | $3.84 billion | $3.84 billion |
| Net loans at year-end | $2.67 billion | $2.62 billion |
| Deposits at year-end | $2.92 billion | $2.99 billion |
| Stockholders’ equity at year-end | $526.6 million | $475.9 million |
Cash and cash equivalents ended 2019 at $85.1 million, down $56.3 million year over year. Operating activities provided $62.8 million; investing activities used $32.1 million; financing activities used $87.1 million. The filing reports total borrowings and repurchase agreements of $345.9 million at year-end, including $208.1 million in customer repurchase agreements, $113.9 million in FHLB advances, and $18.9 million in subordinated debentures. The company reported $100 million of overnight federal-funds lines, approximately $535.5 million of additional FHLB borrowing capacity subject to collateral, and an undrawn $10 million parent-company credit line.
Consolidated regulatory capital ratios were strong: total risk-based capital 15.74%, Tier 1 risk-based capital 14.79%, common equity Tier 1 14.12%, and leverage 11.20%. Return on average assets was 1.25%; return on average common equity was 9.49%. Dividends declared were $0.76 per share.
Fourth-quarter snapshot
For the quarter ended December 31, 2019, net income was $12.0 million and diluted EPS was $0.72, compared with $9.9 million and $0.62 in fourth-quarter 2018. Quarterly net interest income was $31.0 million, approximately flat with $31.0 million a year earlier; provision expense rose to $2.7 million from $3.2 million? The filing reports $2.737 million in Q4 2019 and $3.184 million in Q4 2018.
Material changes versus 2018
- Net income rose 31% and diluted EPS rose 14%. Net interest income increased 12.5%, while the reported tax-equivalent margin declined 15 basis points to 3.64%, reflecting lower acquisition-related accretion and higher funding costs.
- Noninterest income increased $20.6 million, led by insurance commissions (up $10.4 million) and wealth management revenue (up $7.1 million), substantially reflecting the SCB/Soy Capital acquisition and expanded business.
- Noninterest expense rose $22.0 million, principally from acquisition-related staffing, occupancy, amortization, and integration costs. The company reported approximately $2.8 million of Soy Capital acquisition costs in 2019 and $191,000 of First Bank acquisition costs.
- Year-end deposits declined $71.3 million, primarily from lower money-market and interest-bearing balances. Net loans increased $49.8 million; commercial real estate and construction/land-development loans drove growth.
- Nonperforming loans declined to $27.8 million from $29.7 million, but net charge-offs increased to $5.7 million from $2.5 million. The allowance was $26.9 million, or 1.00% of loans, versus 0.99% in 2018.
- Available-for-sale securities’ unrealized marks improved; accumulated other comprehensive income moved to positive $8.4 million from negative $6.5 million. The company redeemed $10 million of trust-preferred securities and related debentures in October 2019.
Outlook, risks, contingencies, and notable items
- Guidance: The filing provides no specific earnings or revenue guidance. Management describes ongoing focus on organic growth, acquisitions, deposit gathering, and maintaining capital and liquidity.
- Credit and concentration risks: Loans are concentrated in Illinois and in real estate-related lending (about 68% of the portfolio). Agriculture-related loans totaled $376.4 million, including $301.5 million to other grain farming; hotel/motel loans were $120.7 million. Management flags potential stress from low commodity prices, drought, real-estate weakness, and reduced travel or business activity.
- Interest-rate risk: The company was liability-sensitive cumulatively through the first 12 months in its gap analysis. Its modeled net interest income declined 2.3% under a 100-basis-point rate decrease and 6.8% under a 200-basis-point decrease; modeled increases under rising rates were modest. These are scenario estimates, not forecasts.
- CECL: Adoption was required January 1, 2020. Management’s initial estimate was a 5%–10% increase in the allowance for loan losses, with a corresponding cumulative adjustment to retained earnings.
- Commitments: Unused commitments and lines of credit totaled $573.7 million; standby letters of credit were $11.5 million. Management did not anticipate losses on these instruments. Contractual obligations totaled $945.8 million, including deposits, borrowings, leases, and retirement obligations.
- Other: The company adopted lease accounting in 2019, recording a $17.0 million right-of-use asset and $17.0 million lease liability at year-end. It reported no unresolved SEC staff comments and no litigation believed material. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Investor verification priorities
- Separate acquisition-driven growth from organic growth and confirm whether acquired businesses deliver expected cost savings and revenue synergies.
- Track funding costs, deposit retention, net interest margin, and sensitivity to falling rates.
- Review loan concentrations and asset-quality trends, especially agriculture, commercial real estate, and hotel/motel exposures; compare charge-offs with the allowance.
- Verify the actual CECL adoption impact against management’s 5%–10% estimate.
- Monitor liquidity sources, commitment drawdowns, and the timing and refinancing of FHLB advances and other obligations.