FIRST MID BANCSHARES INC

Previous wording

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, 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.

Current wording

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 six months ended June 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.

Previous wording

Net income was $20.5 million and $19.2 million for the three months ended March 31, 2024 and 2023, respectively. Diluted net income per common share was $0.86 and $0.93 for the three months ended March 31, 2024 and 2023, respectively.

Current wording

Net income was $40.2 million and $35.7 million for the six months ended June 30, 2024 and 2023, respectively. Diluted net income per common share was $1.68 and $1.74 for the six months ended June 30, 2024 and 2023, respectively.

Previous wording

The following table shows the Company’s annualized performance ratios for three months ended March 31, 2024 and 2023, compared to the performance ratios for the year ended December 31, 2023:

Current wording

The following table shows the Company’s annualized performance ratios for six months ended June 30, 2024 and 2023, compared to the performance ratios for the year ended December 31, 2023:

Previous wording

Total assets were $7.7 billion at March 31, 2024, compared to $7.6 billion as of December 31, 2023. From December 31, 2023 to March 31, 2024, cash and cash equivalents increased $212.6 million, net loan balances decreased $80.4 million and investment securities decreased $31.9 million. Net loan balances were $5.43 billion at March 31, 2024 compared to $5.51 billion at December 31, 2023.

Current wording

Total assets were $7.6 billion at June 30, 2024, compared to $7.6 billion as of December 31, 2023. From December 31, 2023 to June 30, 2024, cash and cash equivalents increased $92.4 million, net loan balances decreased $22.4 million and investment securities decreased $60.7 million. Net loan balances were $5.48 billion at June 30, 2024 compared to $5.51 billion at December 31, 2023.

Previous wording

Net interest margin, on a tax equivalent basis, defined as net interest income divided by average interest-earning assets, was 3.25% for the three months ended March 31, 2024, up from 2.94% 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. Net interest income before the provision for loan losses was $55.5 million compared to net interest income of $43.2 million for the same period in 2023. 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.

Current wording

Net interest margin, on a tax equivalent basis, defined as net interest income divided by average interest-earning assets, was 3.30% for the six months ended June 30, 2024, up from 2.89% 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. Net interest income before the provision for loan losses was $112.2 million compared to net interest income of $85.6 million for the same period in 2023. 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.

Previous wording

Total non-interest income of $24.5 million increased $2.0 million or 8.9% from $22.5 million for the same period last year. The increase in non-interest income resulted primarily from an increase in insurance commissions and income from Blackhawk Bank partially offset by a decrease in wealth management revenues and bank owned life insurance income.

Current wording

Total non-interest income of $46.9 million increased $4.9 million or 11.8% from $42.0 million for the same period last year. The increase in non-interest income resulted primarily from an increase in insurance commissions and income generated from former Blackhawk Bank customers partially offset by a decrease in wealth management revenues, bank owned life insurance income, and miscellaneous income.

Previous wording

Total non-interest expense of $53.4 million increase $11.8 million or 28.3% from $41.6 million for the same period last year. The increase was primarily due to the acquisition of Blackhawk Bank and the related amortization of intangibles and increased size of the bank.

Current wording

Total non-interest expense of $104.8 million increase $23.2 million or 28.4% from $81.6 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.

Previous wording

Credit quality is an area of importance to the Company. Total nonperforming loans were $20.1 million at March 31, 2024, compared to $15.2 million at March 31, 2023 and $20.1 million at December 31, 2023. See the discussion under the heading “Loan Quality and Allowance for Loan Losses” for a detailed explanation of these balances. Repossessed asset balances totaled $1.4 million at March 31, 2024 compared to $4.1 million at March 31, 2023 and $1.2 million at December 31, 2023.

Current wording

Credit quality is an area of importance to the Company. Total nonperforming loans were $19.1 million at June 30, 2024, compared to $18.6 million at June 30, 2023 and $20.1 million at December 31, 2023. See the discussion under the heading “Loan Quality and Allowance for Loan Losses” for a detailed explanation of these balances. Repossessed asset balances totaled $1.5 million at June 30, 2024 compared to $4.0 million at June 30, 2023 and $1.2 million at December 31, 2023.

Previous wording

The Company’s provision for credit losses for the three months ended March 31, 2024 and 2023 was ($357,000) and ($817,000), respectively. Total loans past due 30 days or more were 0.32% of loans at March 31, 2024 compared to 0.21% at March 31, 2023, and 0.26% of loans at December 31, 2023. Loans secured by both commercial and residential real estate comprised approximately 69.3% of the loan portfolio as of March 31, 2024 and 68.9% as of December 31, 2023.

Current wording

The Company’s provision for credit losses for the six months ended June 30, 2024 and 2023 was $726,000 and ($359,000), respectively. Total loans past due 30 days or more were 0.42% of loans at June 30, 2024 compared to 0.22% at June 30, 2023, and 0.26% of loans at December 31, 2023. Loans secured by both commercial and residential real estate comprised approximately 69.0% of the loan portfolio as of June 30, 2024 and 68.9% as of December 31, 2023.

Previous wording

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, 2024 and 2023 and December 31, 2023 was 12.46%, 12.88% and 12.02%, respectively. The Company’s total capital to risk weighted assets ratio calculated under the regulatory risk-based capital requirements at March 31, 2024 and 2023, and December 31, 2023 was 15.35%, 15.74% 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 for the period increasing equity and a decrease in risk weighted assets related to loans and other assets.

Current wording

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 June 30, 2024 and 2023 and December 31, 2023 was 12.65%, 12.82% and 12.02%, respectively. The Company’s total capital to risk weighted assets ratio calculated under the regulatory risk-based capital requirements at June 30, 2024 and 2023, and December 31, 2023 was 15.46%, 15.67% 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 significantly increasing.

Previous wording

The Company expensed $869,000 and $463,000 for the assessment during the first three months of 2024 and 2023, respectively.

Current wording

The Company expensed $1,771,000 and $1,539,000 for the assessment during the first six months of 2024 and 2023, respectively.

Previous wording

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 2024 and 2023 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 $616,000 and $755,000 for 2024 and 2023, respectively were 3.20% and 2.89% at March 31, 2024 and 2023, respectively.

Current wording

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 2024 and 2023 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 $1,211,000 and $1,500,000 for 2024 and 2023, respectively were 3.25% and 2.84% at June 30, 2024 and 2023, respectively.

Previous wording

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, 2024 and 2023 in the following table (dollars in thousands):

Current wording

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 six months ended June 30, 2024 and 2023 in the following table (dollars in thousands):

Previous wording

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, 2024, compared to the same period in 2023 (in thousands):

Current wording

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 six months ended June 30, 2024, compared to the same period in 2023 (in thousands):

Previous wording

Tax equivalent net interest income increased $12.1 million, or 27.6%, to $56.1 million for the three months ended March 31, 2024, from $43.9 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.

Current wording

Tax equivalent net interest income increased $26.4 million, or 30.3%, to $113.4 million for the six months ended June 30, 2024, from $87.1 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.

Previous wording

For the three months ended March 31, 2024, average earning assets increased $832.6 million, or 13.8%, and average interest-bearing liabilities increased $697.1 million or 14.7% compared with average balances for the same period in 2023.

Current wording

For the six months ended June 30, 2024, average earning assets increased $799.5 million, or 13.2%, and average interest-bearing liabilities increased $610.1 million or 12.9% compared with average balances for the same period in 2023.

Previous wording

Average interest-bearing deposits with other financial institutions increased $157.7 million or 1005.1%.

Current wording

Average interest-bearing deposits with other financial institutions increased $125.2 million or 492.1%.

Previous wording

Average federal funds sold decreased $6.7 million or 85.9%.

Current wording

Average federal funds sold decreased $7.3 million or 92.9%.

Previous wording

Average certificates of deposits investments decreased $244,000 or 13.6%.

Current wording

Average certificates of deposits investments increased $893,000 or 51.0%.

Previous wording

Average loans increased by $735.9 million or 15.4%.

Current wording

Average loans increased by $743.9 million or 15.6%.

Previous wording

Average securities decreased by $54.1 million or 4.4%.

Current wording

Average securities decreased by $63.3 million or 5.1%.

Previous wording

Average interest-bearing customer deposits increased by $929.0 million or 24.2%.

Current wording

Average interest-bearing customer deposits increased by $847.2 million or 21.8%.

Previous wording

Average securities sold under agreements to repurchase increased by $33.6 million or 14.5%.

Current wording

Average securities sold under agreements to repurchase increased by $6.3 million or 2.7%.

Previous wording

Average borrowings and other debt decreased by $265.5 million or 40.5%.

Current wording

Average borrowings and other debt decreased by $243.4 million or 38.8%.

Previous wording

Net interest margin increased to 3.25% for the first three months of 2024 from 2.94% for the first three months of 2023.

Current wording

Net interest margin increased to 3.30% for the first six months of 2024 from 2.89% for the first six months of 2023.

Previous wording

The provision for credit losses for the three months ended March 31, 2024 and 2023 was ($357,000) and ($817,000), respectively. Net charge offs were $382,000 for the three months ended March 31, 2024, compared to net charge offs of $53,000 for March 31, 2023. Nonperforming loans were $20.1 million and $15.2 million as of March 31, 2024 and 2023, 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.

Current wording

The provision for credit losses for the six months ended June 30, 2024 and 2023 was $726,000 and ($359,000), respectively. Net charge offs were $1,089,000 for the six months ended June 30, 2024, compared to net charge offs of $15,000 for June 30, 2023. Nonperforming loans were $19.1 million and $18.6 million as of June 30, 2024 and 2023, 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.

Previous wording

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, 2024 and 2023 (in thousands):

Current wording

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 six months ended June 30, 2024 and 2023 (in thousands):

Previous wording

Following are explanations of the changes in these other income categories for the three months ended March 31, 2024 compared to the same period in 2023:

Current wording

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

Previous wording

Wealth management revenues decreased for the three month period due to less agricultural service fees partially offset by increased brokerage and trust fees.

Current wording

Wealth management revenues decreased for the six month period due to less agricultural service fees mostly offset by increased brokerage and trust fees.

Previous wording

Insurance commissions increased primarily due to an increase in commission income partially offset by a decrease in contingency income during 2024 compared to the same period last year.

Current wording

Insurance commissions increased primarily due to an increase in commission income, including the acquisition of PGIB, partially offset by a decrease in contingency income during 2024 compared to the same period last year.

Previous wording

Fees from service charges increased during the first three months of 2024 primarily due to the acquisition of Blackhawk Bank.

Current wording

Fees from service charges increased during the first six months of 2024 primarily due to the acquisition of Blackhawk Bank.

Previous wording

Net losses from the sale of securities during 2024 were $0 and net losses in 2023 were $46,000. The Company did not sell any securities during the quarter ended March 31, 2024.

Current wording

Net losses from the sale of securities during 2024 were $156,000 and net losses in 2023 were $52,000. The Company sold 17 securities during the quarter ended June 30, 2024 with the intent to replace them with higher yielding assets.

Previous wording

Bank owned life insurance income decreased approximately $520,000 during the first three months of 2024 compared to the same period in 2023 primarily due to a claim payout in 2023.

Current wording

Bank owned life insurance income decreased approximately $517,000 during the first six months of 2024 compared to the same period in 2023 primarily due to a claim payout in 2023.

Previous wording

The following table sets forth the major components of other expense for the three months ended March 31, 2024 and 2023 (dollars in thousands):

Current wording

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

Previous wording

Following are explanations for the changes in these other expense categories for the three months ended March 31, 2024 compared to the same period in 2023:

Current wording

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

Previous wording

The increase in salaries and employee benefits, the largest component of other expense, is primarily due to the acquisition of Blackhawk Bank partially offset by the Company's efficiency improvement efforts. There were 1,188 and 988 full-time equivalent employees at March 31, 2024 and 2023, respectively.

Current wording

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 June 30, 2024. This was partially offset by the Company's efficiency improvement efforts. There were 1,185 and 995 full-time equivalent employees at June 30, 2024 and 2023, respectively.

Previous wording

The decrease in net other real estate owned expense was primarily due to properties sold during 2023 that no longer have ongoing expense during 2024 and no write downs of other real estate owned during the period.

Current wording

The decrease in net other real estate owned expense for the six month period was primarily due to properties sold during 2023 that no longer have ongoing expense during 2024 and no write downs of other real estate owned during the period. However, the increase in quarter to date expense in 2024 compared to 2023 can be explained by the addition of four properties to other real estate owned during the quarter ended June 30, 2024.

Previous wording

Expense for amortization of intangible assets increased for the three months ended March 31, 2024 compared to 2023. Core deposit intangibles and mortgage servicing rights increased due to the acquisition of Blackhawk Bank.

Current wording

Expense for amortization of intangible assets increased for the six months ended June 30, 2024 compared to 2023. Core deposit intangibles and mortgage servicing rights increased due to the acquisition of Blackhawk Bank.

Previous wording

The increase in other operating expenses during the first three months of 2024 was primarily due to nonrecurring costs from the acquisition of Blackhawk Bank during the period.

Current wording

The increase in other operating expenses during the first six months of 2024 was primarily due to the acquisition of Blackhawk Bank.

Previous wording

On a net basis, all other categories of operating expenses increased during the period compared to last year primarily due to the the acquisition of Blackhawk Bank.

Current wording

On a net basis, all other categories of operating expenses increased during the period compared to last year primarily due to the acquisition of Blackhawk Bank.