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Item 2. Management’s Discussion and Analysis

2025-05-09 compared with 2024-11-08 · 185 added, 381 removed, 489 unchanged (54% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is intended to provide a better understanding of the consolidated financial condition and results of operations of the Company and its subsidiaries as of, and for the three and nine months ended September 30, 2024 and 2023.

This discussion and analysis should be read in conjunction with the consolidated financial statements, related notes and selected financial data appearing elsewhere in this report.

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Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of First Mid, are identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or similar expressions.

Actual results could differ materially from the results indicated by these statements because the realization of those results is subject to many risks and uncertainties, including, among other things, the possibility that any of the anticipated benefits of the merger between First Mid and Blackhawk will not be realized or will not be realized within the expected time period;

or of the merger between First Mid and Blackhawk will not be realized or will not be realized within the expected time period;

changes in interest rates;

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Forward-looking statements speak only as of the date they are made.

Except as required under the federal securities laws or the rules and regulations of the SEC, we do not undertake any obligation to update or review any forward-looking information, whether as a result of new information, future events or otherwise.

Except as required under the federal securities laws or the rules

and regulations of the SEC, we do not undertake any obligation to update or review any forward-looking information, whether as a result of new information, future events or otherwise.

This overview of management’s discussion and analysis highlights selected information in this document and may not contain all the information that is important to you.

For a more complete understanding of trends, events, commitments, uncertainties, liquidity, capital resources, and critical accounting estimates which have an impact on the Company’s financial condition and results of operations you should carefully read this entire document.

Net income was $59.7 million and $50.9 million for the nine months ended September 30, 2024 and 2023, respectively.

Diluted net income per common share was $2.49 and $2.40 for the nine months ended September 30, 2024 and 2023, respectively.

The following table shows the Company’s annualized performance ratios for nine months ended September 30, 2024 and 2023,

compared to the performance ratios for the year ended December 31, 2023:

Nine months ended

September 30, 2024

September 30, 2023

Net income was $22.2 million and $20.5 million for the three months ended March 31, 2025 and 2024, respectively.

Diluted net income per common share was $0.93 and $0.86 for the three months ended March 31, 2025 and 2024, respectively.

The following table shows the Company’s annualized performance ratios for three months ended March 31, 2025 and 2024, compared to the performance ratios for the year ended December 31, 2024:

Three months ended

March 31, 2025

March 31, 2024

December 31, 2024

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Average equity to average assets

Total assets were $7.6 billion at September 30, 2024, compared to $7.6 billion as of December 31, 2023.

From December 31, 2023 to September 30, 2024, cash and cash equivalents increased $21.1 million, net loan balances increased $30.8 million and investment securities decreased $55.7 million.

Net loan balances were $5.5 billion at September 30, 2024 compared to $5.5 billion at December 31, 2023.

Net interest margin, on a tax equivalent basis, defined as net interest income divided by average interest-earning assets, was 3.32% for the nine months ended September 30, 2024, up from 2.95% for the same period in 2023.

This increase was primarily due to an increase in earning asset yields partially offset by increased rates on interest-bearing deposits and borrowings.

Total assets were $7.6 billion at March 31, 2025, compared to $7.5 billion as of December 31, 2024.

From December 31, 2024 to March 31, 2025, cash and cash equivalents increased $80.3 million, net loan balances increased $29.5 million and investment securities decreased $23.5 million.

Net loan balances were $5.6 billion at March 31, 2025 compared to $5.6 billion at December 31, 2024.

Net interest margin, on a tax equivalent basis, defined as net interest income divided by average interest-earning assets, was 3.60% for the three months ended March 31, 2025, up from 3.25% for the same period in 2024.

This increase was primarily due to an increase in earning asset yields and by decreased rates on interest-bearing deposits and borrowings.

Net interest income before the provision for loan losses was $59.4 million compared to net interest income of $55.5 million for the same period in 2024.

The increase in net interest income was primarily due to the acquisition of Blackhawk Bank during the third quarter of 2023 and increased net interest margin as mentioned above.

Total non-interest income of $69.9 million increased $4.9 million or 7.5% from $65.0 million for the same period last year.

The increase in non-interest income resulted primarily from an increase in insurance commissions, wealth management revenues, and income generated from former Blackhawk Bank customers partially offset by a decrease in bank owned life insurance income and a decrease in the gain or loss on securities.

The increase in net interest income was due to the increased net interest margin as mentioned above.

Total non-interest income of $24.9 million increased $386,000 or 1.6% from $24.5 million for the same period last year.

The increase in non-interest income resulted primarily from an increase in insurance commissions, wealth management revenues, and a gain recognized on a death benefit received from bank owned life insurance partially offset by a decrease in miscellaneous income.

Total non-interest expense of $54.5 million increased $1.1 million or 2.1% from $53.4 million for the same period last year.

The increase was primarily due to the acquisition of Blackhawk Bank during the third quarter of 2023 and the related amortization of intangibles and increased size of the bank causing increased expenses.

The increase was primarily due to the routine annual increases in salaries and employee benefits and nonrecurring technology project expenses which were partially offset by the decrease in integration expenses compared to the first quarter of 2024 related to Blackhawk Bank.

Following is a summary of the factors that contributed to the changes in net income (in thousands):

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Three months ended

Nine months ended

September 30, 2024

March 31, 2025

Net interest income

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Credit quality is an area of importance to the Company.

Total nonperforming loans were $18.2 million at September 30, 2024, compared to $21.3 million at September 30, 2023 and $20.1 million at December 31, 2023.

Total nonperforming loans were $26.6 million at March 31, 2025, compared to $20.1 million at March 31, 2024 and $29.8 million at December 31, 2024.

See the discussion under the heading “Loan Quality and Allowance for Loan Losses” for a detailed explanation of these balances.

Repossessed asset balances totaled $1.8 million at September 30, 2024 compared to $2.3 million at September 30, 2023 and $1.2 million at December 31, 2023.

The Company’s provision for credit losses for the nine months ended September 30, 2024 and 2023 was $2.0 million and $5.6 million, respectively.

Total loans past due 30 days or more were 0.39% of loans at September 30, 2024 compared to 0.23% at September 30, 2023, and 0.26% of loans at December 31, 2023.

Loans secured by both commercial and residential real estate comprised approximately 68.8% of the loan portfolio as of September 30, 2024 and 68.9% as of December 31, 2023.

Repossessed asset balances totaled $2.1 million at March 31, 2025 compared to $1.4 million at March 31, 2024 and $2.2 million at December 31, 2024.

The Company’s provision for credit losses for the three months ended March 31, 2025 and 2024 was $1.7 million and ($357,000), respectively.

Total loans past due 30 days or more were 0.32% of loans at March 31, 2025 compared to 0.32% at March 31, 2024, and 0.19% of loans at December 31, 2024.

Loans secured by both commercial and residential real estate comprised approximately 68.3% of the loan portfolio as of March 31, 2025 and 68.4% as of December 31, 2024.

The Company’s capital position remains strong, and the Company has consistently maintained regulatory capital ratios above the “well-capitalized” standards.

The Company’s Tier 1 capital to risk weighted assets ratio calculated under the regulatory risk-based capital requirements at September 30, 2024 and 2023 and December 31, 2023 was 12.70%, 10.19% and 12.02%, respectively.

The Company’s total capital to risk weighted assets ratio calculated under the regulatory risk-based capital requirements at September 30, 2024 and 2023, and December 31, 2023 was 15.24%, 12.60% and 14.84%, respectively.

The increase in Tier 1 capital and total to risk weighted assets ratio from December 31, 2023 was primarily due to net income less dividends declared for the period increasing equity and a decrease in risk weighted assets related to a reallocation of the Company's balance sheet resulting in lower risk weighted assets such as cash on hand increasing and investment securities decreasing.

On March 27, 2020, the federal banking regulatory agencies, issued an interim final rule which provided an option to delay the estimated impact on regulatory capital of ASU 2016-13, which was effective January 1, 2020.

The initial impact of adoption of ASU 2016-13, as well as 25% of the quarterly increases in the allowance for credit losses subsequent to adoption of ASU 2016-13 ("CECL adjustments"), was be delayed for two years.

The cumulative amount of these adjustments is being phased out of the regulatory capital calculation over a three-year period, with 75% of the adjustments included in 2022, 50% of the adjustments included in 2023 and 25% of the adjustments included in 2024.

After five years, the temporary delay of ASU 2016-13 adoption will be fully reversed.

The Company has elected this option.

The Company’s Tier 1 capital to risk weighted assets ratio calculated under the regulatory risk-based capital requirements at March 31, 2025 and 2024 and December 31, 2024 was 13.13%, 12.46% and 12.82%, respectively.

The Company’s total capital to risk weighted assets ratio calculated under the regulatory risk-based capital requirements at March 31, 2025 and 2024, and December 31, 2024 was 15.59%, 15.35% and 15.37%, respectively.

The increase in Tier 1 capital and total to risk weighted assets ratio from December 31, 2024 was primarily due to net income less dividends declared for the period increasing equity and a decrease in risk weighted assets related to a reallocation of the Company's balance sheet resulting in lower risk weighted assets such as cash on hand increasing and investment securities decreasing partially offset by an increase in loans.

The Company’s liquidity position remains sufficient to fund operations and meet the requirements of borrowers, depositors, and creditors.

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These financial instruments include lines of credit, letters of credit and other commitments to extend credit.

The total outstanding commitments at September 30, 2024 and 2023, were $1.4 billion and $1.1 billion, respectively.

The total outstanding commitments at March 31, 2025 and 2024, were $1.5 billion and $1.3 billion, respectively.

Federal Deposit Insurance Corporation Insurance Coverage.

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Several requirements with respect to the FDIC insurance system have affected results, including insurance assessment rates.

The Company expensed $2.6 million and $2.3 million for the assessment during the first nine months of 2024 and 2023, respectively.

The Company expensed $849,000 and $869,000 for the assessment during the first three months of 2025 and 2024, respectively.

Critical Accounting Policies and Use of Significant Estimates

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generally accepted accounting principles in the preparation of the Company’s consolidated financial statements.

The significant accounting policies of the Company are described in the footnotes to the consolidated financial statements included in the Company’s 2023 Annual Report on Form 10-K.

Certain accounting policies involve significant judgments and assumptions by management that have a material impact on the carrying value of certain assets and liabilities;

management considers such accounting policies to be critical accounting policies.

The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances.

Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and assumptions, which could have a material impact on the carrying values of assets and liabilities and the results of operations of the Company.

Investment in Debt and Equity Securities.

The Company classifies its investments in debt and equity securities as either held-to-maturity or available-for-sale in accordance with Statement of Financial Accounting Standards (SFAS) No.

115, “Accounting for Certain Investments in Debt and Equity Securities,” which was codified into ASC 320.

Securities classified as held-to-maturity are recorded at amortized cost.

Available-for-sale securities are carried at fair value.

Fair value calculations are based on quoted market prices when such prices are available.

If quoted market prices are not available, estimates of fair value are computed using a variety of techniques, including extrapolation from the quoted prices of similar instruments or recent trades for thinly traded securities, fundamental analysis, or through obtaining purchase quotes.

Due to the subjective nature of the valuation process, it is possible that the actual fair values of these investments could differ from the estimated amounts, thereby affecting the financial position, results of operations and cash flows of the Company.

If the estimated value of investments is less than the cost or amortized cost, the Company evaluates whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment.

If such an event or change has occurred and the Company determines that the impairment is other-than-temporary, a further determination is made as to the portion of impairment that is related to credit loss.

The impairment of the investment that is related to the credit loss is expensed in the period in which the event or change occurred.

The remainder of the impairment is recorded in other comprehensive income (loss).

Loans are reported at amortized cost.

Amortized cost is the principal balance outstanding, net of purchase discounts and premiums, fair value hedge accounting adjustments and deferred loan fees and costs.

Accrued interest is reported separately and is included in interest receivable in the consolidated balance sheets.

Allowance for Credit Losses - Loans.

The Company believes the allowance for credit losses for loans is the critical accounting policy that requires the most significant judgments and assumptions used in the preparation of its consolidated financial statements.

The allowance for credit losses for loans represents the best estimate of losses inherent in the existing loan portfolio.

An estimate of potential losses inherent in the loan portfolio are determined and an allowance for those losses is established by considering factors including historical loss rates, expected cash flows and estimated collateral values.

In assessing these factors, the Company uses

relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts.

To determine the allowance, the loan portfolio is segmented based on similar risk characteristics.

The allowance for credit losses is estimated using a discounted cash flow (DCF) methodology.

The DCF projects future cash flows over the life of the loan portfolio.

Probability of default (PD) and loss given default (LGD) are key components in calculating expected losses in this model.

The PD is forecasted using a regression model that determines the likelihood of default with a forward-looking forecast of unemployment rates.

The LGD is the percentage of defaulted loans that is ultimately charged off.

The allowance is calculated as the net present value of the expected cash flows less the amortized cost basis of the loans.

Prior to 2022, the allowance for credit losses was measured on a collective (pool) basis for non-individually evaluated loans with similar risk characteristics.

Historical credit loss experience provided the basis for the estimate of expected credit losses.

Adjustments to expected losses are made using qualitative factors for relevant to each loan segment including merger & acquisition activity, economic conditions, changes in policies, procedures & underwriting, and concentrations.

In addition, a forecast, using reasonable and supportable future conditions, is prepared that is used to estimate expected changes to existing and historical conditions in the current period.

The Company estimates the appropriate level of allowance for credit losses for individually evaluated loans by evaluating them separately.

A specific allowance is assigned to an impaired loan when expected cash flows or collateral are less than the carrying amount of the loan.

Allowance for Credit Losses - Off-Balance Sheet Credit Exposures.

The Company estimates expected credit losses over the contractual period that the Company is exposed to credit risk via a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company.

The allowance for credit losses on off-balance sheet credit exposures is included in other liabilities in the consolidated balance sheets.

Other Real Estate Owned.

Other real estate owned acquired through loan foreclosure is initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.

The adjustment at the time of foreclosure is recorded through the allowance for loan losses.

Due to the subjective nature of establishing the fair value when the asset is acquired, the actual fair value of the other real estate owned or foreclosed asset could differ from the original estimate.

If it is determined that fair value temporarily declines subsequent to foreclosure, a valuation allowance is recorded through noninterest expense.

Operating costs associated with the assets after acquisition are also recorded as noninterest expense.

Gains and losses on the disposition of other real estate owned and foreclosed assets are netted and posted to other noninterest expense.

Mortgage Servicing Rights.

The Company has elected to record mortgage servicing rights under the amortization method.

Using this method, servicing rights are amortized in proportion to and over the period of estimated net servicing income.

The amortized assets are assessed for impairment based on fair value at each reporting date.

Impairment is determined by stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type and investor type.

Impairment is recognized through a valuation reserve, to the extent that fair value is less than the carrying amount of the servicing assets.

Fair value in excess of the carrying amount of servicing assets is not recognized.

Deferred Income Tax Assets/Liabilities.

The Company’s net deferred income tax asset arises from differences in the dates that items of income and expense enter our reported income and taxable income.

Deferred tax assets and liabilities are established for these items as they arise.

From an accounting standpoint, deferred tax assets are reviewed to determine if they are realizable based on the historical level of taxable income, estimates of future taxable income and the reversals of deferred tax liabilities.

In most cases, the realization of the deferred tax asset is based on future profitability.

If the Company were to experience net operating losses for tax purposes in a future period, the realization of deferred tax assets would be evaluated for a potential valuation reserve.

Additionally, the Company reviews its uncertain tax positions annually under FASB Interpretation No.

48), “ Accounting for Uncertainty in Income Taxes ,” codified within ASC 740.

An uncertain tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.

The amount recognized is the largest amount of tax benefit that is greater than 50% likely to be recognized on examination.

For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.

A significant amount of judgment is applied to determine both whether the tax position meets the "more likely than not" test as well as to determine the largest amount of tax benefit that is greater than 50% likely to be recognized.

Differences between the position taken by management and that of taxing authorities could result in a reduction of a tax benefit or increase to tax liability, which could adversely affect future income tax expense.

Impairment of Goodwill and Intangible Assets.

Core deposit and customer relationships, which are intangible assets with a finite life, are recorded on the Company’s consolidated balance sheets.

These intangible assets were capitalized as a result of past acquisitions and are being amortized over their estimated useful lives of up to 15 years.

Core deposit intangible assets, with finite

lives will be tested for impairment when changes in events or circumstances indicate that its carrying amount may not be recoverable.

Core deposit intangible assets were tested for impairment as of September 30, 2024 as part of the goodwill impairment test and no impairment was identified.

As a result of the Company’s acquisition activity, goodwill, an intangible asset with an indefinite life, is reflected on the consolidated balance sheets.

Goodwill is evaluated for impairment annually, unless there are factors present that indicate a potential impairment, in which case, the goodwill impairment test is performed more frequently than annually.

Fair Value Measurements.

The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The Company estimates the fair value of a financial instrument using a variety of valuation methods.

Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value.

When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine fair value.

When observable market prices do not exist, the Company estimates fair value.

The Company’s valuation methods consider factors such as liquidity and concentration concerns.

Other factors such as model assumptions, market dislocations, and unexpected correlations can affect estimates of fair value.

Imprecision in estimating these factors can impact the amount of revenue or loss recorded.

157, “ Fair Value Measurements” , which was codified into ASC 820, establishes a framework for measuring the fair value of financial instruments that considers the attributes specific to particular assets or liabilities and establishes a three-level hierarchy for determining fair value based on the transparency of inputs to each valuation as of the fair value measurement date.

The three levels are defined as follows:

• Level 1 — quoted prices (unadjusted) for identical assets or liabilities in active markets.

• Level 2 — inputs include quoted prices for similar assets and liabilities in active markets, quoted prices of identical or similar assets or liabilities in markets that are not active, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

• Level 3 — inputs that are unobservable and significant to the fair value measurement.

At the end of each quarter, the Company assesses the valuation hierarchy for each asset or liability measured.

From time to time, assets or liabilities may be transferred within hierarchy levels due to changes in availability of observable market inputs to measure fair value at the measurement date.

Transfers into or out of hierarchy levels are based upon the fair value at the beginning of the reporting period.

A more detailed description of the fair values measured at each level of the fair value hierarchy can be found in Note 7 – Fair Value of Assets and Liabilities.

The significant accounting policies and use of significant estimates of the Company are described in the footnotes to the consolidated financial statements included in the Company’s 2024 Annual Report on Form 10-K.

Results of Consolidated Operations

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The TE analysis portrays the income tax benefits associated with the tax-exempt assets.

The year-to-date net yield on interest-earning assets excluding the TE adjustments of $2.3 million and $2.3 million for 2024 and 2023, respectively were 3.26% and 2.90% at September 30, 2024 and 2023, respectively.

The Company’s average balances, fully tax equivalent interest income and interest expense, and rates earned or paid for major balance sheet categories are set forth for the three and nine months ended September 30, 2024 and 2023 in the following table (dollars in thousands):

Three months ended September 30, 2024

Three months ended September 30, 2023

Interest-bearing deposits with other financial institutions

Federal funds sold

Certificates of deposit

Investment securities:

Tax-exempt (1)

Loans net of unearned income (TE) (2)

Total earning assets

Cash and due from banks

Premises and equipment

Allowance for credit losses

Liabilities and stockholders' equity

Interest-bearing deposits

Demand deposits

Savings deposits

Time deposits

Total interest-bearing deposits

Securities sold under agreements to repurchase

FHLB advances

Federal funds purchased

Subordinated Debt

Junior subordinated debt

Total borrowings

Total interest-bearing liabilities

Non interest-bearing demand deposits

Other liabilities

Stockholders' equity

Total liabilities and equity

Net interest income

Net interest spread

Impact of non interest-bearing funds

TE net yield on interest-bearing assets

Nine months ended September 30, 2024

Nine months ended September 30, 2023

The year-to-date net yield on interest-earning assets excluding the TE adjustments of $753,000 and $616,000 for 2025 and 2024, respectively were 3.56% and 3.20% at March 31, 2025 and 2024, respectively.

The Company’s average balances, fully tax equivalent interest income and interest expense, and rates earned or paid for major balance sheet categories are set forth for the three months ended March 31, 2025 and 2024 in the following table (dollars in thousands):

Three months ended March 31, 2025

Three months ended March 31, 2024

Interest-bearing deposits with other financial institutions

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Investment securities (1)

Tax-exempt (1)

Loans net of unearned income (TE) (2)

Total earning assets

Cash and due from banks

Premises and equipment

Other nonearning assets

Allowance for credit losses

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FHLB advances

Federal funds purchased

Subordinated debt

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Net interest spread

Impact of non interest-bearing funds

TE net yield on interest-earning assets (3)

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Balances are net of unaccreted discount related to loans acquired.

During the first quarter 2025, the Company changed the methodology utilized for the calculation of net interest margin to be more consistent with what is typically used by peer banks and research analysts.

The calculation now is the annualized net interest income on a tax equivalent basis divided by average interest earning assets.

Changes in net interest income may also be analyzed by segregating the volume and rate components of interest income and interest expense.

The following table summarizes the approximate relative contribution of changes in average volume and interest rates to changes in net interest income for the three and nine months ended September 30, 2024, compared to the same period in 2023 (in thousands):

Three months ended September 30, 2024

compared to 2023 Increase/(Decrease)

Nine months ended September 30, 2024

The following table summarizes the approximate relative contribution of changes in average volume and interest rates to changes in net interest income for the three months ended March 31, 2025, compared to the same period in 2024 (in thousands):

Three months ended March 31, 2025

compared to 2024 Increase/(Decrease)

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Federal funds sold

Certificates of deposit investments

Certificates of deposit

Investment securities

Tax-exempt (2)

Loans (2) (3)

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FHLB advances

Federal funds purchased

Subordinated debt

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Nonaccrual loans have been included in the average balances.

Tax equivalent net interest income increased $33.8 million, or 24.4%, to $172.1 million for the nine months ended September 30, 2024, from $138.3 million for the same period in 2023.

Net interest income and net interest margin increased primarily due to an increase in earning asset yields partially offset by the increase in deposit and borrowing rates.

For the nine months ended September 30, 2024, average earning assets increased $618.8 million, or 9.9%, and average interest-bearing liabilities increased $427.8 million or 8.7% compared with average balances for the same period in 2023.

Tax equivalent net interest income increased $4.1 million, or 7.3%, to $60.2 million for the three months ended March 31, 2025, from $56.1 million for the same period in 2024.

Net interest income and net interest margin increased primarily due to an increase in earning asset yields and a decrease in deposit and borrowing rates.

For the three months ended March 31, 2025, average earning assets decreased $115.0 million, or 1.7%, and average interest-bearing liabilities decreased $219.9 million or 4.1% compared with average balances for the same period in 2024.

The changes in average balances for these periods are shown below:

• Average interest-bearing deposits with other financial institutions increased $106.3 million or 223.7%.

• Average interest-bearing deposits with other financial institutions decreased $102.7 million or 59.2%.

• Average federal funds sold decreased $1.0 million or 93.1%.

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• Average securities decreased by $94.6 million or 8.0%.

• Average interest-bearing customer deposits increased by $672.9 million or 16.6%.

• Average securities sold under agreements to repurchase increased by $0.9 million or 0.4%.

• Average interest-bearing customer deposits decreased by $70.2 million or 1.5%.

• Average securities sold under agreements to repurchase decreased by $62.9 million or 23.8%.

• Average borrowings and other debt decreased by $86.7 million or 22.3%.

• Net interest margin increased to 3.32% for the first nine months of 2024 from 2.95% for the first nine months of 2023.

• Net interest margin increased to 3.60% for the first three months of 2025 from 3.25% for the first three months of 2024.

Provision for Loan Losses

The provision for credit losses for the nine months ended September 30, 2024 and 2023 was $2.0 million and $5.6 million, respectively.

Net charge offs were $1.9 million for the nine months ended September 30, 2024, compared to net charge offs of $0.2 million for September 30, 2023.

Nonperforming loans were $18.2 million and $21.3 million as of September 30, 2024 and 2023, respectively.

The provision for credit losses for the three months ended March 31, 2025 and 2024 was $1.7 million and ($357,000), respectively.

Net charge offs were $1.8 million for the three months ended March 31, 2025, compared to net charge offs of $382,000 for March 31, 2024.

Nonperforming loans were $26.6 million and $20.1 million as of March 31, 2025 and 2024, respectively.

For information on loan loss experience and nonperforming loans, see discussion under the “Nonperforming Loans” and “Loan Quality and Allowance for Loan Losses” sections below.

An important source of the Company’s revenue is other income.

The following table sets forth the major components of other income for the three and nine months ended September 30, 2024 and 2023 (in thousands):

Three months ended September 30,

Nine months September 30,

The following table sets forth the major components of other income for the three months ended March 31, 2025 and 2024 (in thousands):

Three months ended March 31,

Wealth management revenues

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Total other income

Following are explanations of the changes in these other income categories for the three and nine months ended September 30, 2024 compared to the same period in 2023:

• Wealth management revenues increased for the nine month period due to increased brokerage and trust fees, partially offset by less agricultural services fee incomes.

• Insurance commissions increased primarily due to organic growth and the acquisitions of PGIB and MRIG during the second quarter of 2023 and third quarter of 2024, respectively.

• Fees from service charges increased during the first nine months of 2024 primarily due to the acquisition of Blackhawk Bank in the third quarter of 2023.

• Net losses from the sale of securities during 2024 were $0.4 million compared to net gains in 2023 of $3.3 million.

The Company sold 37 securities during the nine months ended September 30, 2024 with the intent to replace them with higher yielding assets and restructured the balance sheet of Blackhawk Bank after the acquisition in 2023.

• The increase in mortgage banking income was due to an increase from loans sold in the secondary market and the acquisition of Blackhawk Bank in the third quarter of 2023.

Following are explanations of the significant changes in these other income categories for the three months ended March 31, 2025 compared to the same period in 2024:

• Wealth management revenues increased for the three month period due to increased brokerage fees and trust fees, and agricultural services fee incomes.

• Insurance commissions increased primarily due to the acquisition of MRIG during the third quarter of 2024.

• The increase in mortgage banking income was due to an increase from loans sold in the secondary market.

First Mid Bank generally releases the servicing rights on loans sold into the secondary market.

• $100.5 million (representing 579 loans) for the nine months ended September 30, 2024.

• $45.5 million (representing 318 loans) for the nine months ended September 30, 2023.

• Revenue from ATMs and debit cards increased due to an increase in activity during the period and the acquisition of Blackhawk Bank in the third quarter of 2023.

• Bank owned life insurance income decreased approximately $0.3 million during the first nine months of 2024 compared to the same period in 2023 primarily due to a claim payout in 2023.

• Other income increased primarily due to gains recognized on the repayment of the Company's subordinated debentures being partially offset by late charges on loans being presented as interest income starting in 2024.

• $28.5 million (representing 140 loans) for the three months ended March 31, 2025.

• $10.6 million (representing 77 loans) for the three months ended March 31, 2024.

• Revenue from ATMs and debit cards decreased due to an decrease in activity during the period resulting in less service charges.

• Bank owned life insurance income increased approximately $566,000 during the first three months of 2025 compared to the same period in 2024 primarily due the gain recognized on a death claim filed in 2025.

• Other income decreased due to a loss recognized on the repayment of the Company's subordinated debentures shown as offsetting the company's other income and numerous other miscellaneous decreases.

Other Expense

The following table sets forth the major components of other expense for the three and nine months ended September 30, 2024 and 2023 (dollars in thousands):

Three months ended September 30,

Nine months ended September 30,

The following table sets forth the major components of other expense for the three months ended March 31, 2025 and 2024 (dollars in thousands):

Three months ended March 31,

Salaries and employee benefits

9 unchanged sentences

Total other expense

Following are explanations for the changes in these other expense categories for the three and nine months ended September 30, 2024 compared to the same period in 2023:

• The increase in salaries and employee benefits, the largest component of other expense, is primarily due to the acquisition of Blackhawk Bank and regularly scheduled annual raises occurring during the quarter ended March 31, 2024.

This was partially offset by the Company's efficiency improvement efforts.

There were 1,207 and 1,224 full-time equivalent employees at September 30, 2024 and 2023, respectively.

• The increase in occupancy and equipment expense was primarily due to the acquisition of Blackhawk Bank during the third quarter of 2023.

• The decrease in net other real estate owned expense for the nine month period was primarily due to significantly less write downs of other real estate owned compared to the same period in 2023.

• Expense for amortization of intangible assets increased for the nine months ended September 30, 2024 compared to 2023.

Core deposit intangibles and mortgage servicing rights increased due to the acquisition of Blackhawk Bank during the third quarter of 2023.

In addition, PGIB was acquired in the second quarter of 2023 and MRIG was acquired in the third quarter of 2024.

• The increase in all other operating expenses during the first nine months of 2024 was primarily due to the acquisition of Blackhawk Bank during the third quarter of 2023.

Total income tax expense amounted to $19.3 million (24.4% effective tax rate) for the nine months ended September 30, 2024, compared to $15.9 million (23.7% effective tax rate) for the same period in 2023.

The increase in effective rate is primarily related to a one time increase in income tax expense required because of the State of Illinois income apportionment law change that occurred during the quarter ended June 30, 2024.

Following are explanations for the significant changes in these other expense categories for the three months ended March 31, 2025 compared to the same period in 2024:

• The increase in salaries and employee benefits, the largest component of other expense, is primarily due to regularly scheduled annual raises.

There were 1,194 and 1,188 full-time equivalent employees at March 31, 2025 and 2024, respectively.

• The increase in occupancy and equipment and legal and professional fees expenses are primarily due to nonrecurring technology project expenses in the first quarter of 2025.

• ATM/Debit card expense increased primarily due to a negotiated settlement from a related vendor resulting in a credit during the first quarter of 2024.

• The decrease in all other operating expenses during the first three months of 2025 was primarily due to integration related expenses for Blackhawk Bank occurring during the first quarter of 2024.

Total income tax expense amounted to $6.0 million (21.2% effective tax rate) for the three months ended March 31, 2025, compared to $6.4 million (23.9% effective tax rate) for the same period in 2024.

The decrease in effective rate is primarily related the interest expense disallowance decreasing due to the Company beginning to utilize an investment subsidiary during the second quarter of 2024 and a decrease in nondeductible expenses.

The Company files U.S.

federal and state of Florida, Illinois, Indiana, Missouri, Texas, and Wisconsin income tax returns.

As of September 30, 2024, the Company is no longer subject to U.S.

As of March 31, 2025, the Company is no longer subject to U.S.

federal or state income tax examinations by tax authorities for years before 2021.

2 unchanged sentences

The types and maturities of securities purchased are primarily based on the Company’s current and projected liquidity and interest rate sensitivity positions.

The following table sets forth the amortized cost of the available-for-sale and held-to-maturity securities as of September 30, 2024 and December 31, 2023 (dollars in thousands):

September 30, 2024

The following table sets forth the amortized cost of the available-for-sale and held-to-maturity securities as of March 31, 2025 and December 31, 2024 (dollars in thousands):

March 31, 2025

December 31, 2024

8 unchanged sentences

Total securities

At September 30, 2024, the Company’s investment portfolio decreased by $89.0 million from December 31, 2023 primarily due to the sale of 37 securities, paydowns, calls and maturities of various securities.

At March 31, 2025, the Company’s investment portfolio decreased by $32.4 million from December 31, 2024 primarily due to the sale of 3 securities, paydowns, calls and maturities of various securities.

When purchasing investment securities, the Company considers its overall liquidity and interest rate risk profile, as well as the adequacy of expected returns relative to the risks assumed.

The table below presents the credit ratings as of September 30, 2024 for investment securities (in thousands):

Average Credit Rating of Fair Value at September 30, 2024 (1)

The table below presents the credit ratings as of March 31, 2025 for investment securities (in thousands):

Average Credit Rating of Fair Value at March 31, 2025 (1)

Available-for-sale:

7 unchanged sentences

Other securities

Total held-to-maturity

Equity securities:

8 unchanged sentences

The loan portfolio is the largest category of the Company’s earning assets.

The following table summarizes the composition of the loan portfolio at amortized cost, including loans held for sale, as of September 30, 2024 and December 31, 2023 (in thousands):

September 30, 2024

The following table summarizes the composition of the loan portfolio at amortized cost, including loans held for sale, as of March 31, 2025 and December 31, 2024 (in thousands):

March 31, 2025

December 31, 2024

12 unchanged sentences

Loan balances increased $26.4 million, or 0.5%.

The increase was primarily due to various types of commercial loans increasing and increased seasonal demand for agricultural operating loans partially offset by decreases in consumer loans and agricultural, construction, and 1-4 family residential properties real estate loans decreasing.

The balance of real estate loans held for sale, included in the balances shown above, amounted to $8.1 million and $5.0 million as of September 30, 2024 and December 31, 2023, respectively.

The increase was primarily due to construction and land development and multifamily residential properties increasing and increased seasonal demand for agricultural operating loans partially offset by decreases in all other loan types.

The balance of real estate loans held for sale, included in the balances shown above, amounted to $3.6 million and $6.6 million as of March 31, 2025 and December 31, 2024, respectively.

Commercial and commercial real estate loans generally involve higher credit risks than residential real estate and consumer loans.

1 unchanged sentence

The Company does not have any sub-prime mortgages or credit card loans outstanding which are also generally considered to be higher credit risk.

Loans are geographically dispersed throughout Illinois, the St.

Loans are geographically dispersed primarily throughout Illinois, the St.

Louis Metro area, central Missouri, Texas, and southern Wisconsin.

While these regions have experienced some economic stress during 2024 and 2023, the Company does not consider these locations high risk areas since these regions have not experienced the significant changes in real estate values seen in some other areas in the United States.

While these regions have experienced some economic stress during 2025 and 2024, the Company does not consider these locations high risk areas.

First Mid Bank does not have a concentration, as defined by the regulatory agencies, in construction and land development loans or commercial real estate loans as a percentage of the sum of Tier 1 Capital and allowance for loan loss for the periods shown above.

At September 30, 2024 and December 31, 2023, First Mid Bank did have industry loan concentrations that exceeded 25% of the sum of Tier 1 Capital and allowance for loan loss in the following industries (dollars in thousands):

September 30, 2024

At March 31, 2025 and December 31, 2024, First Mid Bank did have industry loan concentrations that exceeded 25% of the sum of Tier 1 Capital and allowance for loan loss in the following industries (dollars in thousands):

March 31, 2025

December 31, 2024

5 unchanged sentences

Hotels and motels

not applicable

First Mid Bank had no further industry loan concentrations in excess of 25% of the sum of Tier 1 Capital and allowance for loan loss.

The following table presents the balance of loans outstanding as of September 30, 2024, by contractual maturities (in thousands):

The following table presents the balance of loans outstanding as of March 31, 2025, by contractual maturities (in thousands):

Over 1 through

11 unchanged sentences

Includes demand loans, past due loans and overdrafts.

As of September 30, 2024, loans with maturities over one year consisted of approximately $2.8 billion in fixed rate loans and approximately $1.8 billion in variable rate loans.

As of March 31, 2025, loans with maturities over one year consisted of approximately $2.7 billion in fixed rate loans and approximately $1.9 billion in variable rate loans.

The loan maturities noted above are based on the contractual provisions of the individual loans.

17 unchanged sentences

Write-downs for subsequent declines in value are recorded in non-interest expense in other real estate owned along with other expenses related to maintaining the properties.

The following table presents information concerning the aggregate amount of nonperforming loans and repossessed assets at September 30, 2024 and December 31, 2023 (dollars in thousands):

September 30, 2024

The following table presents information concerning the aggregate amount of nonperforming loans and repossessed assets at March 31, 2025 and December 31, 2024 (dollars in thousands):

March 31, 2025

December 31, 2024

8 unchanged sentences

The following table summarizes the composition of nonaccrual loans (dollars in thousands):

September 30, 2024

March 31, 2025

December 31, 2024

4 unchanged sentences

Loans secured by real estate

Agricultural loans

Commercial and industrial loans

Consumer loans

Interest income that would have been reported if nonaccrual and restructured loans had been performing totaled $0.5 million and $0.2 million for the nine months ended September 30, 2024 and 2023, respectively.

The $0.7 million increase in repossessed assets during the 2024 resulted from $1.1 million of additional assets repossessed and $0.4 million repossessed assets sold, $47,000 writedowns, and no change in fair value premiums and discounts.

Interest income that would have been reported if nonaccrual and restructured loans had been performing totaled $471,000 and $267,000 for the three months ended March 31, 2025 and 2024, respectively.

The $617,000 decrease in repossessed assets during the 2025 resulted from $73,000 of additional assets repossessed and $619,000 repossessed assets sold, $71,000 write-downs, and no change in fair value premiums and discounts.

The following table summarizes the composition of repossessed assets (dollars in thousands):

September 30, 2024

March 31, 2025

December 31, 2024

1 unchanged sentence

1-4 family residential properties

Commercial real estate

Total real estate

1 unchanged sentence

Total repossessed collateral

Repossessed assets sold during the first nine months of 2024 resulted in $17,000 net gain or loss of related to real estate asset sales and net gains of $6,000 related to other asset sales.

The Company also recognized no deferred losses and recorded $47,000 writedowns on real estate properties owned.

Repossessed assets sold during the same period in 2023 resulted in net gains of $0.1 million related to real estate asset sales and net losses of $21,000 related to other asset sales.

The Company also recognized no deferred losses and recorded $1.1 million of writedowns on real estate properties owned.

Repossessed assets sold during the first three months of 2025 resulted in no net gain or loss of related to real estate asset sales and net losses of $9,000 related to other asset sales.

The Company also recognized no deferred losses and recorded $71,000 write-downs on real estate properties owned.

Repossessed assets sold during the same period in 2024 resulted in net losses of no related to real estate asset sales and net gains of $70,000 related to other asset sales.

The Company also recognized no deferred losses and recorded no write-downs on real estate properties owned.

Loan Quality and Allowance for Credit Losses

9 unchanged sentences

All financial institutions face risk factors in their loan portfolios because risk exposure is a function of the business.

The Company’s operations (and therefore its loans) are concentrated in Illinois, Missouri, Texas, and Wisconsin areas, where agriculture is the dominant industry.

A portion of the Company’s operations (and therefore its loans) are concentrated in Illinois, Missouri, Texas, and Wisconsin areas, where agriculture is a major industry.

Accordingly, lending and other business relationships with agriculture-based businesses are critical to the Company’s success.

At September 30, 2024, the

Company’s loan portfolio included $618.4 million of loans to borrowers whose businesses are directly related to agriculture.

At March 31, 2025, the Company’s loan portfolio included $670.1 million of loans to borrowers whose businesses are directly related to agriculture.

Of this amount, $573.1 million was concentrated in other grain farming.

17 unchanged sentences

In addition to internal policies and controls, regulatory authorities periodically review asset quality and the overall adequacy of the allowance for loan losses.

Analysis of the allowance for credit losses as of September 30, 2024 and 2023, and of changes in the allowance for the three and nine months ended September 30, 2024 and 2023, is as follows (dollars in thousands):

Three months ended September 30,

Nine months ended September 30,

Analysis of the allowance for credit losses as of March 31, 2025 and 2024, and of changes in the allowance for the three months ended March 31, 2025 and 2024, is as follows (dollars in thousands):

Three months ended March 31,

Average loans outstanding, net of unearned income

Allowance-prior year end of period

Allowance-beginning of period

Construction and land development

1-4 family residential

2 unchanged sentences

Total charge-offs

Construction and land development

1-4 family residential

3 unchanged sentences

Net charge-offs (recoveries)

Provision for credit losses

Provision (release) for credit losses

Allowance-end of period

2 unchanged sentences

Ratio of allowance for credit losses to nonperforming loans

The increase in the allowance for credit losses to nonperforming loans ratio is primarily due to an increase in the allowance for credit losses and a decrease in nonperforming loans.

During the first nine months of 2024, the Company had net charge offs of $1.9 million compared to net charge offs of $0.2 million in 2023.

During the first nine months of 2024, there was two commercial real estate loans to two borrowers totaling $0.5 million.

During the first nine months of 2023, there were one agricultural loan to one borrower totaling $0.2 million.

The decrease in the allowance for credit losses to nonperforming loans ratio is primarily due to an increase in nonperforming loans.

During the first three months of 2025, the Company had net charge offs of $1.8 million compared to net charge offs of $382,000 in 2024.

During the first three months of 2025, there was one commercial real estate loan to one borrower totaling $338,000, three agricultural loans to two borrowers totaling $996,000, and one commercial operating loan to one borrower totaling $145,000.

During the first three months of 2024, there was one commercial operating loan to one borrower totaling $273,000.

Funding of the Company’s earning assets is substantially provided by a combination of consumer, commercial and public fund deposits.

The Company continues to focus its strategies and emphasis on retail core deposits, the major component of funding sources.

The following table sets forth the average deposits and weighted average rates for the nine months ended September 30, 2024 and 2023 and for the year ended December 31, 2023 (dollars in thousands):

Nine months ended

September 30, 2024

Nine months ended

September 30, 2023

The following table sets forth the average deposits and weighted average rates for the three months ended March 31, 2025 and 2024 and for the year ended December 31, 2024 (dollars in thousands):

Three months ended

March 31, 2025

Three months ended

March 31, 2024

December 31, 2024

4 unchanged sentences

Total average deposits

During the first nine months of 2024, the average balance of deposits increased by $581.5 million from the average balance for the

year ended December 31, 2023.

Average non-interest-bearing deposits increased by $95.7 million, average interest-bearing balances increased by $400.6 million, savings account balances increased $22.6 million, and balances of time deposits increased $62.5 million.

During the first three months of 2025, the average balance of deposits decreased by $70.6 million from the average balance for the year ended December 31, 2024.

Average non-interest-bearing deposits decreased by $37.4 million, average interest-bearing balances decreased by $776,000, average savings account balances decreased $34.9 million, and average balances of time deposits increased $2.6 million.

Approximately 99% of the Company’s deposit accounts are less than $250,000.

The average account balance for all deposit customers is approximately $23,000.

The following table sets forth the high and low month-end balances for the nine months ended September 30, 2024 and 2023 and for the year ended December 31, 2023 (in thousands):

Nine months ended

September 30, 2024

Nine months ended

September 30, 2023

The following table sets forth the high and low month-end balances for the three months ended March 31, 2025 and 2024 and for the year ended December 31, 2024 (in thousands):

Three months ended

March 31, 2025

Three months ended

March 31, 2024

December 31, 2024

2 unchanged sentences

Balances of time deposits, including brokered time deposits of $100,000 or more include time deposits maintained for public fund entities and consumer time deposits.

The following table sets forth the maturity of time deposits, including brokered time deposits of $100,000 or more at September 30, 2024 and December 31, 2023 (in thousands):

September 30, 2024

The following table sets forth the maturity of time deposits, including brokered time deposits of $100,000 or more at March 31, 2025 and December 31, 2024 (in thousands):

March 31, 2025

December 31, 2024

8 unchanged sentences

Other borrowings consist of Federal Home Loan Bank (“FHLB”) advances, federal funds purchased, loans (short-term or long-term debt) that the Company has outstanding and junior subordinated debentures.

Information relating to securities sold under agreements to repurchase and other borrowings as of September 30, 2024 and December 31, 2023 is presented below (dollars in thousands):

September 30, 2024

Information relating to securities sold under agreements to repurchase and other borrowings as of March 31, 2025 and December 31, 2024 is presented below (dollars in thousands):

March 31, 2025

December 31, 2024

1 unchanged sentence

Federal Home Loan Bank advances:

FHLB-overnight

Fixed term-due in one year or less

Fixed term-due after one year

Other borrowings:

Debt due in one year or less

Subordinated debt

8 unchanged sentences

Other borrowings:

Debt due in one year or less

Subordinated debt

7 unchanged sentences

Other borrowings:

Federal funds purchased

Debt due in one year or less

Subordinated debt

1 unchanged sentence

Average interest rate during the period

Securities sold under agreements to repurchase decreased $9.4 million during the first nine months of 2024 primarily due to the cash flow needs of various customers.

Securities sold under agreements to repurchase increased $15.7 million during the first three months of 2025 primarily due to the seasonal demands in balances.

FHLB advances represent borrowings by First Mid Bank to economically fund loan demand.

At September 30, 2024 the fixed term advances, consisted of $238.6 million as follows:

At March 31, 2025 the fixed term advances, consisted of $195.0 million as follows:

Term (in years)

1 unchanged sentence

Maturity Date

November 8, 2024

December 31, 2024

March 10, 2025

December 23, 2025

June 15, 2026

December 8, 2027

June 29, 2028

3 unchanged sentences

December 31, 2029

February 7, 2030

March 5, 2035

The Company is party to a revolving credit agreement with The Northern Trust Company in the amount of $15.0 million.

There was no balance on this line of credit as of September 30, 2024.

There was no balance on this line of credit as of March 31, 2025.

This loan was renewed on April 4, 2025 for one year as a revolving credit agreement.

The interest rate is floating at 2.25% over the federal funds rate.

The Company and First Mid Bank, as applicable, were in compliance with the existing covenants at September 30, 2024 and 2023, and December 31, 2023.

The Company and First Mid Bank, as applicable, were in compliance with the existing covenants at March 31, 2025 and 2024, and December 31, 2024.

On October 6, 2020, the Company issued and sold $96.0 million in aggregate principal amount of its 3.95% Fixed-to-Floating Rate Subordinated Notes due 2030 (the “Notes”).

5 unchanged sentences

On June 7, 2024, August 27, 2024, and September 6, 2024, the Company repurchased in open market transactions and subsequently cancelled $4.0 million, $15.0 million, and $1.0 million respectively, of the outstanding Notes.

As a result, as of September 30, 2024, $76 million in aggregate principal amount of the Notes remain issued and outstanding.

As a result, as of March 31, 2025, $76 million in aggregate principal amount of the Notes remain issued and outstanding.

The Company may, beginning with the interest payment date of October 15, 2025, and on any interest payment date thereafter, redeem the Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption.

6 unchanged sentences

On August 15, 2023, the Company assumed, as part of the Blackhawk Bancorp, Inc.

acquisition, $7.5 million principal amount of 3.5% Fixed-to-Floating Rate Subordinated Notes due 2031 (“Blackhawk Subordinated Debt I”).

Blackhawk Subordinated Debt I was issued pursuant to Indenture between the Company and UMB Bank, as trustee (the “Trustee”).

The Indenture governs the terms of the Notes and provides that the Notes are unsecured, subordinated debt obligations of the Company and will mature on May 14, 2031.

From and including the date of issuance to, but excluding May 14, 2026, the Notes will bear interest at an initial rate of 3.5% per annum.

From and including May 14, 2026 to, but excluding the maturity date, the Notes will bear interest at a floating rate equal to three-month Term SOFR plus a spread of 285 basis points.

acquisition, $7.5 million principal amount of 3.5% Fixed-to-Floating Rate Subordinated Notes due 2031 (the “Blackhawk Subordinated Debt I Notes”).

The Blackhawk Subordinated Debt I was issued pursuant to the Indenture (the "Blackhawk Subordinated Debt I Indenture") between the Company and UMB Bank, as trustee.

The Blackhawk Subordinated Debt I Indenture governs the terms of Blackhawk Subordinated Debt I Notes and provides that the Blackhawk Subordinated Debt I Notes are unsecured, subordinated debt obligations of the Company and will mature on May 14, 2031.

From and including the date of issuance to, but excluding May 14, 2026, Blackhawk Subordinated Debt I Notes will bear interest at an initial rate of 3.5% per annum.

From and including May 14, 2026 to, but excluding the maturity date, Blackhawk Subordinated Debt I Notes will bear interest at a floating rate equal to three-month Term SOFR plus a spread of 285 basis points.

On February 5, 2025, the Company repurchased in open market transactions and subsequently cancelled $3.0 million of the outstanding Blackhawk Subordinated Debt I Notes.

As a result, as of March 31, 2025, $4.5 million in aggregate principal amount of Blackhawk Subordinated Debt I Notes remain issued and outstanding.

On August 15, 2023, the Company assumed, as part of the Blackhawk Bancorp, Inc.

acquisition, $7.5 million principal amount of 3.875% Fixed-to-Floating Rate Subordinated Notes due 2036 (“Blackhawk Subordinated Debt II”).

Blackhawk Subordinated Debt II was issued pursuant to Indenture between the Company and UMB Bank, as trustee (the “Trustee”).

The Indenture governs the terms of the Notes and provides that the Notes are unsecured, subordinated debt obligations of the Company and will mature on May 14,

From and including the date of issuance to, but excluding May 14, 2031, the Notes will bear interest at an initial rate of 3.875% per annum.

From and including May 14, 2031 to, but excluding the maturity date, the Notes will bear interest at a floating rate equal to three-month Term SOFR plus a spread of 255 basis points.

acquisition, $7.5 million principal amount of 3.875% Fixed-to-Floating Rate Subordinated Notes due 2036 (the “Blackhawk Subordinated Debt II Notes”).

The Blackhawk

Subordinated Debt II was issued pursuant to the Indenture (the "Blackhawk Subordinated Debt II Indenture") between the Company and UMB Bank, as trustee.

The Blackhawk Subordinated Debt II Indenture governs the terms of Blackhawk Subordinated Debt II Notes and provides that the Blackhawk Subordinated Debt II Notes are unsecured, subordinated debt obligations of the Company and will mature on May 14, 2036.

From and including the date of issuance to, but excluding May 14, 2031, Blackhawk Subordinated Debt II Notes will bear interest at an initial rate of 3.875% per annum.

From and including May 14, 2031 to, but excluding the maturity date, Blackhawk Subordinated Debt II Notes will bear interest at a floating rate equal to three-month Term SOFR plus a spread of 255 basis points.

On February 5, 2025, the Company repurchased in open market transactions and subsequently cancelled $7.0 million of the outstanding Blackhawk Subordinated Debt II Notes.

As a result, as of March 31, 2025, $500,000 in aggregate principal amount of Blackhawk Subordinated Debt II Notes remain issued and outstanding.

On April 26, 2006, the Company completed the issuance and sale of $10.0 million of fixed/floating rate trust preferred securities through First Mid-Illinois Statutory Trust II (“Trust II”), a statutory business trust and wholly owned unconsolidated subsidiary of the Company, as part of a pooled offering.

The Company established Trust II for the purpose of issuing the trust preferred securities.

The $10.0 million in proceeds from the trust preferred issuance and an additional $0.3 million for the Company’s investment in common equity of Trust II, a total of $10.3 million, was invested in junior subordinated debentures of the Company.

The underlying junior subordinated debentures issued by the Company to Trust II mature in 2036, bore interest at a fixed rate of 6.98% paid quarterly until June 15, 2011 and then converted to floating rate (SOFR plus 160 basis points, 6.81% and 7.25% at September 30, 2024 and December 31, 2023, respectively).

The $10.0 million in proceeds from the trust preferred issuance and an additional $310,000 for the Company’s investment in common equity of Trust II, a total of $10.3 million, was invested in junior subordinated debentures of the Company.

The underlying junior subordinated debentures issued by the Company to Trust II mature in 2036, bore interest at a fixed rate of 6.98% paid quarterly until June 15, 2011 and then converted to floating rate (SOFR plus 160 basis points, 6.22% and 6.81% at March 31, 2025 and December 31, 2024, respectively).

On September 8, 2016, the Company assumed the trust preferred securities of Clover Leaf Statutory Trust I (“CLST I”), a statutory business trust that was a wholly owned unconsolidated subsidiary of First Clover Financial.

The $4.0 million of trust preferred securities and an additional $0.1 million investment in common equity of CLST I, is invested in junior subordinated debentures issued to CLST I.

The subordinated debentures mature in 2025, bear interest at three-month SOFR plus 185 basis points (7.06% and 7.50% at September 30, 2024 and December 31, 2023, respectively) and resets quarterly.

The $4.0 million of trust preferred securities and an additional $124,000 investment in common equity of CLST I, is invested in junior subordinated debentures issued to CLST I.

The subordinated debentures mature in 2025, bear interest at three-month SOFR plus 185 basis points (6.47% and 7.06% at March 31, 2025 and December 31, 2024, respectively) and resets quarterly.

On May 1, 2018, the Company assumed the trust preferred securities of FBTC Statutory Trust I (“FBTCST I”), a statutory business trust that was a wholly owned unconsolidated subsidiary of First BancTrust Corporation.

The $6.0 million of trust preferred securities and an additional $0.1 million investment in common equity of FBTCST I is invested in junior subordinated debentures issued to FBTCST I.

The subordinated debentures mature in 2035, bear interest at three-month SOFR plus 170 basis points (6.91% and 7.35% at September 30, 2024 and December 31, 2023, respectively) and resets quarterly.

The $6.0 million of trust preferred securities and an additional $186,000 investment in common equity of FBTCST I is invested in junior subordinated debentures issued to FBTCST I.

The subordinated debentures mature in 2035, bear interest at three-month SOFR plus 170 basis points (6.32% and 6.91% at March 31, 2025 and December 31, 2024, respectively) and resets quarterly.

On August 15, 2023, the Company assumed the trust preferred securities of Blackhawk Statutory Trust I (“BHST I”), a statutory business trust that was a wholly owned unconsolidated subsidiary of Blackhawk Bancorp, Inc.

The $1.0 million of trust preferred securities and an additional $31,000 investment in common equity of BHST I is invested in junior subordinated debentures issued to BHST I.

The subordinated debentures mature in 2032, bear interest at three-month SOFR plus 325 basis points (8.17% and 8.87% at September 30, 2024 and December 31, 2023, respectively) and resets quarterly.

The subordinated debentures mature in 2032, bear interest at three-month SOFR plus 325 basis points (7.84% and 8.17% at March 31, 2025 and December 31, 2024, respectively) and resets quarterly.

On August 15, 2023, the Company assumed the trust preferred securities of Blackhawk Statutory Trust II (“BHST II”), a statutory business trust that was a wholly owned unconsolidated subsidiary of Blackhawk Bancorp, Inc.

The $4.0 million of trust preferred securities and an additional $0.1 million investment in common equity of BHST II is invested in junior subordinated debentures issued to BHST II.

The subordinated debentures mature in 2035, bear interest at three-month SOFR plus 205 basis points (7.25% and 7.69% at September 30, 2024 and December 31, 2023, respectively) and resets quarterly.

The $4.0 million of trust preferred securities and an additional $124,000 investment in common equity of BHST II is invested in junior subordinated debentures issued to BHST II.

The subordinated debentures mature in 2035, bear interest at three-month SOFR plus 205 basis points (6.66% and 7.25% at March 31, 2025 and December 31, 2024, respectively) and resets quarterly.

The trust preferred securities issued by Trust II, CLST I, FBTCST I, BHST I, and BHST II are included as Tier 1 capital of the Company for regulatory capital purposes.

7 unchanged sentences

New issuances of trust preferred securities, however, would not count as Tier 1 regulatory capital.

In addition to requirements of the Dodd-Frank Act discussed above, the act also required the federal banking agencies to adopt certain rules that prohibit banks and their affiliates from engaging in proprietary trading and investing in and sponsoring certain unregistered investment companies (defined as hedge funds and private equity funds).

This rule is generally referred to as the “Volcker Rule.” The rules permit the retention of an interest in or sponsorship of covered funds by banking entities under $15.0 billion in assets (such as the Company) if (1) the collateralized debt obligation was established and issued prior to May 19, 2010, (2) the banking entity reasonably believes that the offering proceeds received by the collateralized debt obligation were invested primarily in qualifying trust preferred collateral, and (3) the banking entity’s interests in the collateralized debt obligation was

acquired on or prior to December 10, 2013.

In addition to requirements of the Dodd-Frank Act discussed above, the act also required the federal banking agencies to adopt

certain rules that prohibit banks and their affiliates from engaging in proprietary trading and investing in and sponsoring certain unregistered investment companies (defined as hedge funds and private equity funds).

The Company does not currently anticipate that the Volcker Rule will have a material effect on the operations of the Company or First Mid Bank.

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By comparing the volumes of interest-bearing assets and liabilities that have contractual maturities and repricing points at various times in the future, management can gain insight into the amount of interest rate risk embedded in the balance sheet.

The following table sets forth the Company’s interest rate repricing GAP for selected maturity periods at September 30, 2024 (dollars in thousands):

The following table sets forth the Company’s interest rate repricing GAP for selected maturity periods at March 31, 2025 (dollars in thousands):

Rate Sensitive Within

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Federal funds sold and other interest-bearing deposits

Certificates of deposit investments

Certificates of deposit

Taxable investment securities

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Cumulative Ratio

The static GAP analysis shows that at September 30, 2024, the Company was liability sensitive, on a cumulative basis, through the twelve-month time horizon.

The static GAP analysis shows that at March 31, 2025, the Company was liability sensitive, on a cumulative basis, through the twelve-month time horizon.

This indicates that future increases in interest rates could have an adverse effect on net interest income.

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Capital Resources

At September 30, 2024, the Company’s stockholders' equity increased $65.3 million or 8.2%, to $858.5 million from $793.2 million as of December 31, 2023.

During the first nine months of 2024, net income contributed $59.7 million to equity before the payment of dividends to stockholders.

At March 31, 2025, the Company’s stockholders' equity increased $24.6 million or 2.9%, to $870.9 million from $846.4 million as of December 31, 2024.

During the first three months of 2025, net income contributed $22.2 million to equity before the payment of dividends to stockholders.

The change in market value of available-for-sale investment securities increased stockholders' equity by $7.0 million, net of tax.

Dividends of $16.7 million were paid during the first nine months of 2024.

Dividends of $5.7 million were paid during the first three months of 2025.

The Company is subject to various regulatory capital requirements administered by the federal banking agencies.

Bank holding companies follow minimum regulatory requirements established by the Board of Governors of the Federal Reserve System (“Federal Reserve System”), First Mid Bank follows similar minimum regulatory requirements established for banks by the Office of the Comptroller of the Currency (“OCC”) and the Federal Deposit Insurance Corporation, as applicable.

Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary action by regulators that, if undertaken, could have

a direct material effect on the Company’s financial statements.

Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary action by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements.

Quantitative measures established by regulatory capital standards to ensure capital adequacy require the Company and its subsidiary bank to maintain minimum capital amounts and ratios (set forth in the table below).

Management believes that, as of September 30, 2024 and December 31, 2023, the Company and First Mid Bank, as applicable, met all capital adequacy requirements.

As permitted by the interim final rule issued on March 27, 2020 by the federal banking regulatory agencies, the Company elected the option to delay the estimated impact on regulatory capital of adopting ASU 2016-13, which was effective January 1, 2020.

The initial impact of adoption of ASU 2016-13, as well as 25% of the quarterly increases in allowance for credit losses subsequent to adoption of ASU 2016-13 was delayed for two years.

After two years, the cumulative amount of these adjustments is being phased out of the regulatory capital calculation over a three-year period, with 75% of the adjustments included in 2022, 50% of the adjustments included in 2023 and 25% of the adjustments included in 2024.

After five years, the temporary delay of ASU 2016-13 adoption will be fully reversed.

To be categorized as well-capitalized, total risk-based capital, Tier 1 risk-based capital, common equity Tier 1 risk-based capital and Tier 1 leverage ratios must be maintained as set forth in the following table (dollars in thousands):

Required Minimum For

Capital Adequacy

To Be Well-Capitalized

Under Prompt Corrective

Action Provisions

September 30, 2024

Total capital (to risk-weighted assets)

First Mid Bank

Tier 1 capital (to risk-weighted assets)

First Mid Bank

Common equity tier 1 capital (to risk-weighted assets)

First Mid Bank

Tier 1 capital (to average assets)

First Mid Bank

December 31, 2023

Total capital (to risk-weighted assets)

First Mid Bank

Tier 1 capital (to risk-weighted assets)

First Mid Bank

Common equity tier 1 capital (to risk-weighted assets)

First Mid Bank

Tier 1 capital (to average assets)

First Mid Bank

The Company's risk-weighted assets, capital, and capital ratios for September 30, 2024 are computed in accordance with Basel III capital rules which were effective January 1, 2015.

As of September 30, 2024, the Company and First Mid Bank had capital ratios above the required minimums for regulatory capital adequacy, and First Mid Bank had capital ratios that qualified it for treatment as well-capitalized under the regulatory framework for prompt corrective action with respect to banks.

Participants may purchase Company stock under the following three plans of the Company:

The Deferred Compensation Plan, the Dividend Reinvestment Plan, and the Stock Incentive Plan.

For more detailed information on these plans, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Management believes that, as of March 31, 2025 and December 31, 2024, the Company and First Mid Bank, as applicable, met all capital adequacy requirements, as further detailed in Note 10 of our consolidated financial statements.

Stock Incentive Plan.

At the Annual Meeting of Stockholders held April 26, 2017, the stockholders approved the 2017 Stock Incentive Plan ("SI Plan").

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A maximum of 600,000 shares of common stock may be issued under the ESPP.

As of September 30, 2024, 119,047 shares have been issued pursuant to the ESPP.

During the nine months ended September 30, 2024 and 2023, 25,319 shares and 28,762 shares, respectively, were issued pursuant to the ESPP.

As of March 31, 2025, 133,555 shares have been issued pursuant to the ESPP.

During the three months ended March 31, 2025 and 2024, 6,891 shares and 8,612 shares, respectively, were issued pursuant to the ESPP.

Stock Repurchase Program.

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• First Mid Bank has $130 million available in overnight federal fund lines, including $30 million from First Horizon Bank, N.A., $20 million from U.S.

Bank, N.A., $10 million from Wells Fargo Bank, N.A., $15 million from The Northern Trust Company, $25 million from Zions Bank, and $20 million from BMO Bank, N.A.

Bank, N.A., $20 million from Bankers' Bank, $15 million from The Northern Trust Company, $25 million from Zions Bank, and $20 million from BMO Bank, N.A.

Availability of the funds is subject to First Mid Bank meeting minimum regulatory capital requirements for total capital to risk-weighted assets and Tier 1 capital to total average assets.

As of September 30, 2024, First Mid Bank met these regulatory requirements.

As of March 31, 2025, First Mid Bank met these regulatory requirements.

• First Mid Bank can borrow from the Federal Home Loan Bank as a source of liquidity.

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Collateral that can be pledged includes one-to-four family residential real estate loans and securities.

At September 30, 2024, the excess collateral at the FHLB would support approximately $1.6 billion of additional advances for First Mid Bank.

At March 31, 2025, the excess collateral at the FHLB would support approximately $1.6 billion of additional advances for First Mid Bank.

• First Mid Bank is a member of the Federal Reserve System and can borrow funds provided that sufficient collateral is pledged.

• In addition, as of September 30, 2024, the Company had a revolving credit agreement in the amount of $15.0 million with The Northern Trust Company with an outstanding balance of $0 and $15.0 million in available funds.

• In addition, as of March 31, 2025, the Company had a revolving credit agreement in the amount of $15.0 million with The Northern Trust Company with an outstanding balance of $0 and $15.0 million in available funds.

This loan was renewed on April 5, 2024 for one year as a revolving credit agreement.

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The loan is unsecured.

The Company and its subsidiary bank were in compliance with the existing covenants at September 30, 2024 and 2023 and December 31, 2023.

The Company and its subsidiary bank were in compliance with the existing covenants at March 31, 2025 and 2024 and December 31, 2024.

Management continues to monitor its expected liquidity requirements carefully, focusing primarily on cash flows from:

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• operating activities, including scheduled debt repayments and dividends to stockholders.

The following table summarizes significant contractual obligations and other commitments at September 30, 2024 (in thousands):

The following table summarizes significant contractual obligations and other commitments at March 31, 2025 (in thousands):

Time deposits

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Supplemental retirement

For the nine months ended September 30, 2024, net cash of $86.2 million was provided by operating activities, $39.5 million was provided by investing activities, and $104.5 million was used in financing activities.

For the three months ended March 31, 2025, net cash of $47.9 million was provided by operating activities, $4.5 million was provided by investing activities, and $27.8 million was provided by financing activities.

In total, cash and cash equivalents increased by $80.3 million since year-end 2024.

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However, the Company does not anticipate any losses from these instruments.

The off-balance sheet financial instruments whose contract amounts represent credit risk at September 30, 2024 and December 31, 2023 were as follows (in thousands):

September 30, 2024

December 31, 2023

Unused commitments and lines of credit:

Commercial real estate

Commercial operating

Standby letters of credit

Commitments to originate credit represent approved commercial, residential real estate and home equity loans that generally are expected to be funded within ninety days.

Lines of credit are agreements by which the Company agrees to provide a borrowing accommodation up to a stated amount as long as there is no violation of any condition established in the loan agreement.

Both commitments to originate credit and lines of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee.

Since many of the lines and some commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements.

Standby letters of credit are conditional commitments issued by the Company to guarantee the financial performance of customers to third parties.

Standby letters of credit are primarily issued to facilitate trade or support borrowing arrangements and generally expire in one year or less.

The credit risk involved in issuing letters of credit is essentially the same as that involved in extending credit facilities to customers.

The maximum amount of credit that would be extended under letters of credit is equal to the total off-balance sheet contract amount of such instrument.

The Company's deferred revenue under standby letters of credit was nominal.

The Company is also subject to claims and lawsuits that arise primarily in the ordinary course of business.

It is the opinion of management that the disposition of ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Company.

Off-balance sheet arrangements are further detailed in Note 11 of our consolidated financial statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis