Item 2. Management’s Discussion and Analysis
ITEM 2. 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 months ended March 31, 2025 and 2024. 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.
Forward-Looking Statements
This document may contain certain forward-looking statements about First Mid, such as discussions of First Mid’s pricing and fee trends, credit quality and outlook, liquidity, new business results, expansion plans, anticipated expenses and planned schedules. First Mid intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. 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 acquisition of Mid Rivers Insurance Group, Inc. 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; general economic conditions and those in the market areas of First Mid; legislative and/or regulatory changes; monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board; the quality or composition of First Mid’s loan or investment portfolios and the valuation of those investment portfolios; demand for loan products; deposit flows; competition, demand for financial services in the market areas of First Mid; accounting principles, policies and guidelines. Additional information concerning First Mid, including additional factors and risks that could materially affect First Mid’s financial results, are included in First Mid’s filings with the SEC, including its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. Forward-looking statements speak only as of the date they are made. Except as required under the federal securities laws or the rules
34
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.
Overview
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 $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
Year ended
March 31, 2025
March 31, 2024
December 31, 2024
Return on average assets
1.19
%
1.07
%
1.04
%
Return on average common equity
10.35
%
10.37
%
9.67
%
Average equity to average assets
11.46
%
10.35
%
10.76
%
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 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 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):
Change in
Net Income
2025 versus 2024
Three months ended
March 31, 2025
Net interest income
$
3,939
Provision for credit losses
(2,009
)
Other income, including securities transactions
386
Other expenses
(1,110
)
Income taxes
462
Increase in net income
$
1,668
Credit quality is an area of importance to the Company. 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 $2.1 million at March 31, 2025 compared to $1.4 million at March 31, 2024 and $2.2 million at December 31, 2024.
35
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 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. The Company maintains various sources of liquidity to fund its cash needs. See the discussion under the heading “Liquidity” for a full listing of sources and anticipated significant contractual obligations.
The Company enters into financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include lines of credit, letters of credit and other commitments to extend credit. 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. As FDIC-insured institutions, First Mid Bank is required to pay deposit insurance premium assessments to the FDIC. Several requirements with respect to the FDIC insurance system have affected results, including insurance assessment rates.
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
The Company has established various accounting policies that govern the application of U.S. generally accepted accounting principles in the preparation of the Company’s consolidated financial statements. 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
Net Interest Income
The largest source of revenue for the Company is net interest income. Net interest income represents the difference between total interest income earned on earning assets and total interest expense paid on interest-bearing liabilities. The amount of interest income is dependent upon many factors, including the volume and mix of earning assets, the general level of interest rates and the dynamics of changes in interest rates. The cost of funds necessary to support earning assets varies with the volume and mix of interest-bearing liabilities and the rates paid to attract and retain such funds.
Net interest income is the excess of interest received from earning assets over interest paid on interest-bearing liabilities. For analytical purposes, net interest income is presented on a full tax equivalent ("TE") basis in the table that follows. The federal statutory rate in effect of 21% for 2025 and 2024 was used. 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 $753,000 and $616,000 for 2025 and 2024, respectively were 3.56% and 3.20% at March 31, 2025 and 2024, respectively.
36
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
Average
Average
Average
Average
Balance
Interest
Rate
Balance
Interest
Rate
Assets
Interest-bearing deposits with other financial institutions
$
70,701
$
827
4.74
%
$
173,365
$
2,407
5.58
%
Federal funds sold
75
1
3.83
%
1,094
17
6.18
%
Certificates of deposit
3,162
36
4.59
%
1,545
20
5.15
%
Investment securities (1)
1,090,099
7,254
2.66
%
1,184,666
7,920
2.67
%
Loans net of unearned income (TE) (2)
5,605,821
80,194
5.80
%
5,524,185
77,924
5.67
%
Total earning assets
6,769,858
88,312
5.29
%
6,884,855
88,288
5.16
%
Other nonearning assets
777,177
828,657
Allowance for credit losses
(70,620
)
(69,059
)
Total assets
$
7,476,415
$
7,644,453
Liabilities and stockholders' equity
Interest-bearing deposits
Demand deposits
$
3,039,621
$
14,900
1.99
%
$
3,036,837
$
16,612
2.20
%
Savings deposits
640,687
164
0.10
%
707,849
178
0.10
%
Time deposits
1,022,200
8,658
3.44
%
1,028,045
9,306
3.64
%
Total interest-bearing deposits
4,702,508
23,722
2.05
%
4,772,731
26,096
2.20
%
Securities sold under agreements to repurchase
201,679
1,180
2.37
%
264,587
2,056
3.13
%
FHLB advances
194,324
1,807
3.77
%
258,554
2,314
3.60
%
Subordinated debt
82,608
949
4.66
%
106,791
1,194
4.50
%
Junior subordinated debentures
24,306
468
7.81
%
24,084
542
9.05
%
Other debt
1,467
24
6.63
%
—
—
—
%
Total borrowings
504,384
4,428
3.56
%
654,016
6,106
3.75
%
Total interest-bearing liabilities
5,206,892
28,150
2.19
%
5,426,747
32,202
2.39
%
Non interest-bearing demand deposits
1,370,107
1.74
%
1,367,798
1.91
%
Other liabilities
42,962
59,056
Stockholders' equity
856,454
790,852
Total liabilities and equity
$
7,476,415
$
7,644,453
Net interest income
$
60,162
$
56,086
Net interest spread
3.10
%
2.77
%
TE net yield on interest-earning assets (3)
3.60
%
3.25
%
1. The tax-exempt income is shown on a tax equivalent basis.
2. Nonaccrual loans and loans held for sale are included in the average balances. Balances are net of unaccreted discount related to loans acquired.
3. 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.
37
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 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)
Total
Change
Volume (1)
Rate (1)
Earning assets:
Interest-bearing deposits
$
(1,580
)
$
(1,260
)
$
(320
)
Federal funds sold
(16
)
(11
)
(5
)
Certificates of deposit
16
31
(15
)
Investment securities
(666
)
(629
)
(37
)
Loans (2) (3)
2,270
890
1,380
Total interest income
$
24
$
(979
)
$
1,003
Interest-bearing liabilities:
Interest-bearing deposits
Demand deposits
$
(1,712
)
$
105
$
(1,817
)
Savings deposits
(14
)
(14
)
—
Time deposits
(648
)
(61
)
(587
)
Securities sold under agreements to repurchase
(876
)
(433
)
(443
)
FHLB advances
(507
)
(1,165
)
658
Subordinated debt
(245
)
(507
)
262
Junior subordinated debentures
(74
)
33
(107
)
Other debt
24
—
24
Total interest expense
(4,052
)
(2,042
)
(2,010
)
Net interest income
$
4,076
$
1,063
$
3,013
1. Changes attributable to the combined impact of volume and rate have been allocated proportionately to the change due to volume and the change due to rate.
2. The tax-exempt income is shown on a tax-equivalent basis.
3. Nonaccrual loans have been included in the average balances.
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 decreased $102.7 million or 59.2%.
• Average federal funds sold decreased $1.0 million or 93.1%.
• Average certificates of deposits investments increased $1.6 million or 104.7%.
• Average loans increased by $81.6 million or 1.5%.
• Average securities decreased by $94.6 million or 8.0%.
• 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%.
38
• 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 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.
Other Income
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 months ended March 31, 2025 and 2024 (in thousands):
Three months ended March 31,
2025
2024
$ Change
% Change
Wealth management revenues
$
5,800
$
5,322
$
478
9.0
%
Insurance commissions
9,925
9,213
712
7.7
%
Service charges
2,901
2,956
(55
)
-1.9
%
Security gains (losses), net
(181
)
—
(181
)
—
%
Mortgage banking revenue, net
711
706
5
0.7
%
ATM/debit card revenue
3,646
4,055
(409
)
-10.1
%
Bank owned life insurance
1,687
1,121
566
50.5
%
Other
375
1,105
(730
)
-66.1
%
Total other income
$
24,864
$
24,478
$
386
1.6
%
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.
• $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.
39
Other Expense
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,
2025
2024
$ Change
% Change
Salaries and employee benefits
$
31,748
$
30,448
$
1,300
4.3
%
Net occupancy and equipment expense
8,479
7,560
919
12.2
%
Net other real estate owned expense
101
(21
)
122
-581.0
%
FDIC insurance
849
869
(20
)
-2.3
%
Amortization of intangible assets
3,231
3,497
(266
)
-7.6
%
Stationery and supplies
431
391
40
10.2
%
Legal and professional
3,076
2,449
627
25.6
%
Marketing and donations
852
862
(10
)
-1.2
%
ATM/debit card expense
1,831
1,191
640
53.7
%
Other operating expenses
3,874
6,116
(2,242
)
-36.7
%
Total other expense
$
54,472
$
53,362
$
1,110
2.1
%
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.
Income Taxes
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 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.
40
Analysis of Consolidated Balance Sheets
Securities
The Company’s overall investment objectives are to insulate the investment portfolio from undue credit risk, maintain adequate liquidity, insulate capital against changes in market value and control excessive changes in earnings while optimizing investment performance. 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 March 31, 2025 and December 31, 2024 (dollars in thousands):
March 31, 2025
December 31, 2024
Amortized
Cost
Weighted
Average Yield
Amortized
Cost
Weighted
Average Yield
U.S. Treasury securities and obligations of U.S. government corporations and agencies
$
203,079
1.24
%
$
212,513
1.28
%
Obligations of states and political subdivisions
324,071
2.29
%
324,046
2.28
%
Mortgage-backed securities: GSE residential
636,759
1.86
%
653,760
1.88
%
Other securities
63,422
4.42
%
69,396
4.27
%
Total securities
$
1,227,331
2.00
%
$
1,259,715
2.01
%
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 March 31, 2025 for investment securities (in thousands):
Average Credit Rating of Fair Value at March 31, 2025 (1)
Amortized
Cost
Estimated
Fair Value
AAA
AA +/-
A +/-
BBB +/-
< BBB -
Not rated
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies
$
203,079
$
184,933
$
26,956
$
156,785
$
—
$
—
$
—
$
1,192
Obligations of state and political subdivisions
324,071
262,105
35,124
183,604
41,741
—
—
1,636
Mortgage-backed securities (2)
636,759
533,702
—
—
—
—
—
533,702
Other securities
61,137
58,987
—
5,475
13,080
6,920
—
33,512
Total available-for-sale
$
1,225,046
$
1,039,727
$
62,080
$
345,864
$
54,821
$
6,920
$
—
$
570,042
Held-to-maturity:
Other securities
$
2,285
$
2,285
$
—
$
—
$
—
$
—
$
—
$
2,285
Equity securities:
Federal Agricultural Mtg Corp
85
485
—
—
—
—
—
485
Midwest Independent BankersBank
150
210
—
—
—
—
—
210
Equalize Community Development Fund
3,776
3,776
—
—
—
—
—
3,776
Total equity securities
$
4,011
$
4,471
$
—
$
—
$
—
$
—
$
—
$
4,471
1. Credit ratings reflect the lowest current rating assigned by a nationally recognized credit rating agency.
2. Mortgage-backed securities include mortgage-backed securities (MBS) and collateralized mortgage obligation (CMO) issues from the following government sponsored enterprises: FHLMC, FNMA, GNMA and FHLB. While MBS and CMOs are no longer explicitly rated by credit rating agencies, the industry recognizes that they are backed by agencies which have an implied government guarantee.
41
Loans
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 March 31, 2025 and December 31, 2024 (in thousands):
March 31, 2025
December 31, 2024
Amortized
Cost
% Outstanding
Loans
Amortized
Cost
% Outstanding
Loans
Construction and land development
$
269,148
4.7
%
$
236,093
4.2
%
Agricultural real estate
373,413
6.6
%
390,760
6.9
%
1-4 family residential properties
488,139
8.6
%
496,597
8.8
%
Multifamily residential properties
356,858
6.3
%
332,644
5.9
%
Commercial real estate
2,397,985
42.1
%
2,417,585
42.6
%
Loans secured by real estate
3,885,543
68.3
%
3,873,679
68.4
%
Agricultural loans
296,811
5.2
%
239,671
4.2
%
Commercial and industrial loans
1,303,712
22.9
%
1,335,920
23.6
%
Consumer loans
47,220
0.8
%
53,960
1.0
%
All other loans
165,572
2.8
%
169,232
2.8
%
Total loans
$
5,698,858
100.0
%
$
5,672,462
100.0
%
Loan balances increased $26.4 million, or 0.5%. 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. Because payments on loans secured by commercial real estate or equipment are often dependent upon the successful operation and management of the underlying assets, repayment of such loans may be influenced to a great extent by conditions in the market or the economy. 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 primarily throughout Illinois, the St. Louis Metro area, central Missouri, Texas, and southern Wisconsin. 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 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
Principal
balance
% Outstanding
Loans
Principal
balance
% Outstanding
Loans
Other grain farming
$
573,137
10.06
%
$
507,555
8.95
%
Lessors of non-residential buildings
1,052,770
18.47
%
1,049,372
18.50
%
Lessors of residential buildings and dwellings
589,798
10.35
%
557,285
9.82
%
Hotels and motels
217,953
3.82
%
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.
42
The following table presents the balance of loans outstanding as of March 31, 2025, by contractual maturities (in thousands):
Maturity (1)
One year
or less (2)
Over 1 through
5 years
Over 5
years
Total
Construction and land development
$
45,719
$
107,530
$
115,899
$
269,148
Agricultural real estate
24,449
118,632
230,332
373,413
1-4 family residential properties
24,292
96,176
367,671
488,139
Multifamily residential properties
43,706
247,290
65,862
356,858
Commercial real estate
245,376
1,476,053
676,556
2,397,985
Loans secured by real estate
383,542
2,045,681
1,456,320
3,885,543
Agricultural loans
201,193
94,562
1,056
296,811
Commercial and industrial loans
450,131
554,163
299,418
1,303,712
Consumer loans
3,067
43,091
1,062
47,220
All other loans
26,853
16,476
122,243
165,572
Total loans
$
1,064,786
$
2,753,973
$
1,880,099
$
5,698,858
1. Based upon remaining contractual maturity.
2. Includes demand loans, past due loans and overdrafts.
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. The Company has no general policy regarding renewals and borrower requests, which are handled on a case-by-case basis.
Nonperforming Loans and Nonperforming Other Assets
Nonperforming loans include: (a) loans accounted for on a nonaccrual basis; (b) accruing loans contractually past due ninety days or more as to interest or principal payments; and (c) loans not included in (a) and (b) above which are defined as “modified”. Repossessed assets include primarily repossessed real estate and automobiles.
The Company’s policy is to discontinue the accrual of interest income on any loan for which principal or interest is ninety days past due. The accrual of interest is discontinued earlier when, in the opinion of management, there is reasonable doubt as to the timely collection of interest or principal. Once interest accruals are discontinued, accrued but uncollected interest is charged against current year income. Subsequent receipts on non-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal.
Restructured loans are loans on which, due to deterioration in the borrower’s financial condition, the original terms have been modified in favor of the borrower or either principal or interest has been forgiven. Repossessed assets represent property acquired as the result of borrower defaults on loans. These assets are recorded at estimated fair value, less estimated selling costs, at the time of foreclosure or repossession. Write-downs occurring at foreclosure are charged against the allowance for loan losses. On an ongoing basis, properties are appraised as required by market indications and applicable regulations. 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 March 31, 2025 and December 31, 2024 (dollars in thousands):
March 31, 2025
December 31, 2024
Nonaccrual loans
$
25,042
$
28,775
Modified loans which are performing in accordance with revised terms
1,556
1,060
Total nonperforming loans
26,598
29,835
Repossessed assets
2,105
2,195
Total nonperforming loans and repossessed assets
$
28,703
$
32,030
Nonperforming loans to loans, before allowance for credit losses
0.47
%
0.53
%
Nonperforming loans and repossessed assets to loans, before allowance for credit losses
0.50
%
0.56
%
43
The $3.7 million decrease in nonaccrual loans during 2025 resulted from the net of $2.6 million of loans put on nonaccrual status offset by $4.7 million of loans becoming current or paid-off, $0.0 million of loans transferred to other real estate and $1.6 million of loans charged off. The following table summarizes the composition of nonaccrual loans (dollars in thousands):
March 31, 2025
December 31, 2024
Balance
% of Total
Balance
% of Total
Construction and land development
$
6
—
%
$
6
—
%
Agricultural real estate
1,871
7.5
%
2,213
7.7
%
1-4 family residential properties
4,983
19.9
%
4,937
17.2
%
Commercial real estate
7,328
29.3
%
7,716
26.8
%
Loans secured by real estate
14,188
56.7
%
14,872
51.7
%
Agricultural loans
8,585
34.3
%
11,521
40.0
%
Commercial and industrial loans
2,114
8.4
%
2,071
7.2
%
Consumer loans
155
0.6
%
311
1.1
%
Total loans
$
25,042
100.0
%
$
28,775
100.0
%
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):
March 31, 2025
December 31, 2024
Balance
% of Total
Balance
% of Total
Construction and land development
$
1,033
49.1
%
$
1,084
39.8
%
1-4 family residential properties
515
24.5
%
568
20.9
%
Commercial real estate
527
25.0
%
527
19.4
%
Total real estate
2,075
98.6
%
2,179
80.1
%
Consumer loans
30
1.4
%
543
19.9
%
Total repossessed collateral
$
2,105
100.0
%
$
2,722
100.0
%
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
The allowance for credit losses represents management’s estimate of the reserve necessary to adequately account for probable losses existing in the current portfolio. The provision for loan losses is the charge against current earnings that is determined by management as the amount needed to maintain an adequate allowance for loan losses. In determining the adequacy of the allowance for loan losses, and therefore the provision to be charged to current earnings, management relies predominantly on a disciplined credit review and approval process that extends to the full range of the Company’s credit exposure. The review process is directed by overall lending policy and is intended to identify, at the earliest possible stage, borrowers who might be facing financial difficulty. Factors considered by management in evaluating the overall adequacy of the allowance include a migration analysis of the historical net loan losses by loan segment, the level and composition of nonaccrual, past due and renegotiated loans, trends in volumes and terms of loans, effects of changes in risk selection and underwriting standards or lending practices, lending staff changes, concentrations of credit, industry conditions and the current economic conditions in the region where the Company operates.
Management reviews economic factors including the potential for reduced cash flow for commercial operating loans from reduction in sales or increased operating costs, decreased occupancy rates for commercial buildings, reduced levels of home sales for commercial land developments, the uncertainty regarding grain prices, increased operating costs for farmers, and increased levels of unemployment and bankruptcy impacting consumer’s ability to pay. Each of these economic uncertainties was taken into consideration in developing the level of the reserve. Management considers the allowance for loan losses a critical accounting policy.
44
Management recognizes there are risk factors that are inherent in the Company’s loan portfolio. All financial institutions face risk factors in their loan portfolios because risk exposure is a function of the business. 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 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. Total loans to borrowers whose businesses are directly related to agriculture increased $39.5 million from $630.6 million at December 31, 2024 while loans concentrated in other grain farming increased $65.5 million from $507.6 million at December 31, 2024. While the Company adheres to sound underwriting practices, including collateralization of loans, any extended period of low commodity prices, drought conditions, significantly reduced yields on crops and/or reduced levels of government assistance to the agricultural industry could result in an increase in the level of problem agriculture loans and potentially result in loan losses within the agricultural portfolio. In addition, the Company has $218.0 million of loans to motels and hotels. The performance of these loans is dependent on borrower specific issues as well as the general level of business and personal travel within the region. While the Company adheres to sound underwriting standards, a prolonged period of reduced business or personal travel could result in an increase in nonperforming loans to this business segment and potentially in loan losses. The Company also has $1.1 billion of loans to lessors of non-residential buildings, and $589.8 million of loans to lessors of residential buildings and dwellings.
The structure of the Company’s loan approval process is based on progressively larger lending authorities granted to individual loan officers, loan committees, and ultimately the Board of Directors. Outstanding balances to one borrower or affiliated borrowers are limited by federal regulation; however, limits well below the regulatory thresholds are generally observed. Most of the Company’s loans are to businesses located in the geographic market areas served by the Company’s branch bank system. Additionally, a significant portion of the collateral securing the loans in the portfolio is located within the Company’s primary geographic footprint. In general, the Company adheres to loan underwriting standards consistent with industry guidelines for all loan segments.
The Company minimizes credit risk by adhering to sound underwriting and credit review policies. Management and the board of directors of the Company review these policies at least annually. Senior management is actively involved in business development efforts and the maintenance and monitoring of credit underwriting and approval. The loan review system and controls are designed to identify, monitor and address asset quality problems in an accurate and timely manner. The board of directors and management review the status of problem loans each month and formally determine a best estimate of the allowance for loan losses on a quarterly basis. In addition to internal policies and controls, regulatory authorities periodically review asset quality and the overall adequacy of the allowance for loan losses.
45
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,
2025
2024
Average loans outstanding, net of unearned income
$
5,605,821
$
5,524,185
Allowance-beginning of period
70,182
68,675
Charge-offs:
1-4 family residential
39
67
Commercial real estate
338
—
Agricultural
1,117
52
Commercial and industrial
223
274
Consumer
366
426
Total charge-offs
2,083
819
Recoveries:
1-4 family residential
18
49
Commercial real estate
8
161
Commercial and industrial
90
64
Consumer
184
163
Total recoveries
300
437
Net charge-offs (recoveries)
1,783
382
Provision (release) for credit losses
1,652
(357
)
Allowance-end of period
$
70,051
$
67,936
Ratio of annualized net charge-offs to average loans
0.13
%
0.03
%
Ratio of allowance for credit losses to loans outstanding (at amortized cost)
1.23
%
1.24
%
Ratio of allowance for credit losses to nonperforming loans
263
%
339
%
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.
Deposits
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 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
Year ended
December 31, 2024
Average
Balance
Weighted
Average
Rate
Average
Balance
Weighted
Average
Rate
Average
Balance
Weighted
Average
Rate
Demand deposits:
Non-interest-bearing
$
1,370,107
—%
$
1,367,798
—%
$
1,407,537
—%
Interest-bearing
3,039,621
1.99
%
3,036,837
2.20
%
3,040,397
2.24
%
Savings
640,687
0.10
%
707,849
0.10
%
675,622
0.12
%
Time deposits
1,022,200
3.44
%
1,028,045
3.64
%
1,019,629
3.74
%
Total average deposits
$
6,072,615
1.58
%
$
6,140,529
1.71
%
$
6,143,185
1.74
%
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.
46
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
Year ended
December 31, 2024
High month-end balances of total deposits
$
6,130,381
$
6,242,937
$
6,242,937
Low month-end balances of total deposits
6,081,565
6,112,051
6,057,095
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 March 31, 2025 and December 31, 2024 (in thousands):
March 31, 2025
December 31, 2024
3 months or less
$
156,115
$
237,309
Over 3 through 6 months
307,832
206,586
Over 6 through 12 months
139,717
121,154
Over 12 months
103,062
72,818
Total
$
706,726
$
637,867
47
Repurchase Agreements and Other Borrowings
Securities sold under agreements to repurchase are short-term obligations of First Mid Bank. These obligations are collateralized with certain government securities that are direct obligations of the United States or one of its agencies. These retail repurchase agreements are offered as a cash management service to its corporate customers. 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 March 31, 2025 and December 31, 2024 is presented below (dollars in thousands):
March 31, 2025
December 31, 2024
Securities sold under agreements to repurchase
$
219,772
$
204,122
Federal Home Loan Bank advances:
FHLB-overnight
—
90,000
Fixed term-due in one year or less
—
7,435
Fixed term-due after one year
195,000
145,085
Other borrowings:
Debt due in one year or less
—
—
Subordinated debt
79,535
87,472
Junior subordinated debentures
24,335
24,280
Total
$
518,642
$
558,394
Average interest rate at end of period
3.21
%
3.30
%
Maximum outstanding at any month-end:
Securities sold under agreements to repurchase
$
219,772
$
282,285
Federal Home Loan Bank advances:
FHLB-overnight
20,000
90,000
Fixed term-due in one year or less
—
65,000
Fixed term-due after one year
195,000
223,744
Other borrowings:
Debt due in one year or less
4,000
—
Subordinated debt
87,505
106,934
Junior subordinated debentures
24,335
24,280
Averages for the period (YTD):
Securities sold under agreements to repurchase
$
201,679
$
221,789
Federal Home Loan Bank advances:
FHLB-overnight
17,741
560
Fixed term-due in one year or less
—
45,587
Fixed term-due after one year
176,583
193,802
Other borrowings:
Debt due in one year or less
1,467
—
Subordinated debt
82,608
99,313
Junior subordinated debentures
24,306
24,168
Total
$
504,384
$
585,219
Average interest rate during the period
3.56
%
3.71
%
48
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 March 31, 2025 the fixed term advances, consisted of $195.0 million as follows:
Advance
Term (in years)
Interest Rate
Maturity Date
25,000,000
3.0
4.40%
June 15, 2026
25,000,000
3.0
4.37%
May 10, 2027
25,000,000
3.0
4.32%
May 17, 2027
25,000,000
5.0
3.82%
June 29, 2028
25,000,000
5.0
3.93%
June 27, 2029
5,000,000
10.0
1.15%
October 3, 2029
5,000,000
10.0
1.12%
October 3, 2029
10,000,000
10.0
1.39%
December 31, 2029
25,000,000
5.0
3.46%
February 7, 2030
25,000,000
10.0
2.71%
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 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 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”). The Notes were issued pursuant to the Indenture, dated as of October 6, 2020 (the “Base Indenture”), between the Company and U.S. Bank National Association, as trustee (the “Trustee”), as supplemented by the First Supplemental Indenture, dated as of October 6, 2020 (the “Supplemental Indenture”), between the Company and the Trustee. The Base Indenture, as amended and supplemented by the Supplemental Indenture, governs the terms of the Notes and provides that the Notes are unsecured, subordinated debt obligations of the Company and will mature on October 15, 2030. From and including the date of issuance to, but excluding October 15, 2025, the Notes will bear interest at an initial rate of 3.95% per annum. From and including October 15, 2025 to, but excluding the maturity date or earlier redemption, the Notes will bear interest at a floating rate equal to three-month Term SOFR plus a spread of 383 basis points, or such other rate as determined pursuant to the Supplemental Indenture, provided that in no event shall the applicable floating interest rate be less than zero per annum. 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 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. The Company may also redeem the Notes at any time, including prior to October 15, 2025, at the Company’s option, in whole but not in part, if: (i) a change or prospective change in law occurs that could prevent the Company from deducting interest payable on the Notes for U.S. federal income tax purposes; (ii) a subsequent event occurs that could preclude the Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) the Company is required to register as an investment company under the Investment Company Act of 1940, as amended; in each case, at a redemption price equal to 100% of the principal amount of the Notes plus any accrued and unpaid interest to but excluding the redemption date.
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 (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 (the “Blackhawk Subordinated Debt II Notes”). The Blackhawk
49
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 $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 $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 $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 (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 $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. On March 1, 2005, the Federal Reserve Board adopted a final rule that allows the continued limited inclusion of trust preferred securities in the calculation of Tier 1 capital for regulatory purposes. The final rule provided a five-year transition period, ending September 30, 2010, for application of the revised quantitative limits. On March 17, 2009, the Federal Reserve Board adopted an additional final rule that delayed the effective date of the new limits on inclusion of trust preferred securities in the calculation of Tier 1 capital until March 31, 2012. The application of the revised quantitative limits did not and is not expected to have a significant impact on its calculation of Tier 1 capital for regulatory purposes or its classification as well-capitalized. The Dodd-Frank Act, signed into law July 21, 2010, removes trust preferred securities as a permitted component of a holding company’s Tier 1 capital after a three-year phase-in period beginning January 1, 2013 for larger holding companies. For holding companies with less than $15.0 billion in consolidated assets, existing issues of trust preferred securities are grandfathered and not subject to this new restriction.
Similarly, the final rule implementing the Basel III reforms allows holding companies with less than $15.0 billion in consolidated assets as of December 31, 2009 to continue to count toward Tier 1 capital any trust preferred securities issued before May 19, 2010. 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
50
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. 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.
Interest Rate Sensitivity
The Company seeks to maximize its net interest margin while maintaining an acceptable level of interest rate risk. Interest rate risk can be defined as the amount of forecasted net interest income that may be gained or lost due to changes in the interest rate environment, a variable over which management has no control. Interest rate risk, or sensitivity, arises when the maturity or repricing characteristics of interest-bearing assets differ significantly from the maturity or repricing characteristics of interest- bearing liabilities. The Company monitors its interest rate sensitivity position to maintain a balance between rate sensitive assets and rate sensitive liabilities. This balance serves to limit the adverse effects of changes in interest rates. The Company’s asset liability management committee (ALCO) oversees the interest rate sensitivity position and directs the overall allocation of funds.
In the banking industry, a traditional way to measure potential net interest income exposure to changes in interest rates is through a technique known as “static GAP” analysis which measures the cumulative differences between the amounts of assets and liabilities maturing or repricing at various intervals. 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 March 31, 2025 (dollars in thousands):
Rate Sensitive Within
1 year
3 years
5 years
Thereafter
Total
Fair Value
Interest-earning assets:
Federal funds sold and other interest-bearing deposits
$
96,235
$
—
$
—
$
—
$
96,235
$
96,235
Certificates of deposit
2,520
—
—
—
2,520
2,520
Taxable investment securities
118,848
192,219
245,361
419,150
975,578
975,578
Nontaxable investment securities
5,631
9,232
7,908
48,134
70,905
70,905
Loans
2,838,109
1,992,399
628,170
240,180
5,698,858
5,363,390
Total
$
3,061,343
$
2,193,850
$
881,439
$
707,464
$
6,844,096
$
6,508,628
Interest-bearing liabilities:
Savings and NOW accounts
$
175,026
$
—
$
—
$
2,282,691
$
2,457,717
$
2,457,717
Money market accounts
1,215,419
—
—
—
1,215,419
1,215,419
Other time deposits
919,197
124,432
18,588
437
1,062,654
980,999
Short-term borrowings/debt
219,772
—
—
—
219,772
219,772
Long-term borrowings/debt
99,528
78,957
95,000
25,385
298,870
294,280
Total
$
2,628,942
$
203,389
$
113,588
$
2,308,513
$
5,254,432
$
5,168,187
Rate sensitive assets-rate sensitive liabilities
$
432,401
$
1,990,461
$
767,851
$
(1,601,049
)
$
1,589,664
Cumulative GAP
432,401
2,422,862
3,190,713
1,589,664
Cumulative amounts as % of total Rate sensitive assets
6.3
%
29.1
%
11.2
%
-23.4
%
Cumulative Ratio
6.3
%
35.4
%
46.6
%
23.2
%
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. There are several ways the Company measures and manages the exposure to interest rate sensitivity, including static GAP analysis. The Company’s ALCO also uses other financial models to project interest income under various rate scenarios and prepayment/extension assumptions consistent with First Mid Bank’s historical experience and with known industry trends. ALCO meets at least monthly to review the Company’s exposure to interest rate changes as indicated by the various techniques and to make necessary changes in the composition terms and/or rates of the assets and liabilities.
51
Capital Resources
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 $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. 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 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 Plans
Stock Incentive Plan. At the Annual Meeting of Stockholders held April 26, 2017, the stockholders approved the 2017 Stock Incentive Plan ("SI Plan"). The SI Plan was implemented to succeed the Company’s 2007 Stock Incentive Plan, which had a ten-year term. The SI Plan is intended to provide a means whereby directors, employees, consultants and advisors of the Company and its Subsidiaries may sustain a sense of proprietorship and personal involvement in the continued development and financial success of the Company and its Subsidiaries, thereby advancing the interests of the Company and its stockholders. Accordingly, directors and selected employees, consultants and advisors may be provided the opportunity to acquire shares of Common Stock of the Company on the terms and conditions established in the SI Plan.
Following the stockholders’ approval at the 2021 annual meeting of the Company, a maximum of 550,000 shares of common stock may be issued under the SI Plan. The Company awarded 79,635 and 53,766 restricted stock awards during 2025 and 2024, respectively and 46,000 and 39,150 as stock unit awards during 2025 and 2024, respectively.
Employee Stock Purchase Plan. At the Annual Meeting of Stockholders held April 25, 2018, the stockholders approved the First Mid-Illinois Bancshares, Inc. Employee Stock Purchase Plan (“ESPP”). The ESPP is intended to promote the interests of the Company by providing eligible employees with the opportunity to purchase shares of common stock of the Company at a 15% discount through payroll deductions. The ESPP is also intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code. A maximum of 600,000 shares of common stock may be issued under 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. Since August 5, 1998, the Board of Directors has approved repurchase programs pursuant to which the Company may repurchase a total of approximately $76.7 million of the Company’s common stock. During 2025, the Company did not repurchase any shares. The Company has approximately $2.9 million in remaining capacity under its existing repurchase program.
Although the Company adopted the repurchase plan, the Company may make discretionary repurchases in the open market or in privately negotiated transactions from time to time. The timing, manner, price and amount of any such repurchases will be determined by the Company at its discretion and will depend upon a variety of factors including economic and market conditions, price, applicable legal requirements and other factors.
Liquidity
Liquidity represents the ability of the Company and its subsidiaries to meet all present and future financial obligations arising in the daily operations of the business. Financial obligations consist of the need for funds to meet extensions of credit, deposit withdrawals and debt servicing. The Company’s liquidity management focuses on the ability to obtain funds economically through assets that may be converted into cash at minimal costs or through other sources. The Company’s other sources of cash include overnight federal fund lines, Federal Home Loan Bank advances, deposits of the State of Illinois, the ability to borrow at the Federal Reserve Bank of Chicago, and the Company’s operating line of credit with The Northern Trust Company.
52
Details of the Company's liquidity sources include:
• 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., $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 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. Availability of the funds is subject to the pledging of collateral to the Federal Home Loan Bank. Collateral that can be pledged includes one-to-four family residential real estate loans and securities. 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 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. The interest rate is floating at 2.25% over the federal funds rate. The loan is unsecured. 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:
• lending activities, including loan commitments, letters of credit and mortgage prepayment assumptions;
• deposit activities, including seasonal demand of private and public funds;
• investing activities, including prepayments of mortgage-backed securities and call provisions on U.S. Treasury and government agency securities; and
• operating activities, including scheduled debt repayments and dividends to stockholders.
The following table summarizes significant contractual obligations and other commitments at March 31, 2025 (in thousands):
Less than
More than
Total
1 year
1-3 years
3-5 years
5 years
Time deposits
$
1,062,654
$
919,197
$
124,432
$
18,588
$
437
Debt
103,870
4,110
—
—
99,760
Other borrowing
414,772
219,772
75,000
120,000
—
Operating leases
15,886
3,146
5,680
3,734
3,326
Supplemental retirement
1,960
50
250
300
1,360
$
1,599,142
$
1,146,275
$
205,362
$
142,622
$
104,883
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.
Off-Balance Sheet Arrangements
First Mid Bank enters into financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include lines of credit, letters of credit and other commitments to extend credit. Each of these instruments involves, to varying degrees, elements of credit, interest rate and liquidity risk in excess of the amounts recognized in the consolidated balance sheets. The Company uses the same credit policies and requires similar collateral in approving lines of credit and commitments and issuing letters of credit as it does in making loans. The exposure to credit losses on financial instruments is represented by the contractual amount of these instruments. However, the Company does not anticipate any losses from these instruments. Off-balance sheet arrangements are further detailed in Note 11 of our consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the market risk faced by the Company since December 31, 2024. For information regarding the Company’s market risk, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
53
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.