FIRST MID BANCSHARES, INC.

In December 2023, the Financial Accounting Standards Board issued ASU No. 2023-09, Income Tax (Topic 740): Improvements to Income Tax Disclosures. The amendments expand the disclosure requirements of income taxes, primarily related to the income tax rate reconciliation and income taxes paid with the intention to enhance transparency and decision usefulness of income tax disclosures. The amendments are effective for the fiscal years beginning after December 15, 2024 10-K filings. Early adoption was permitted but not applied. The adoption of this accounting pronouncement will have no impact on the Financial Statements aside from additional disclosures presented in the Notes to Consolidated Financial Statements in the year ending December 31, 2025 10-K filing.

Note 2 -- Earnings Per Share

Basic net income per common share available to common stockholders is calculated as net income less preferred stock dividends divided by the weighted average number of common shares outstanding. Diluted net income per common share available to common stockholders is computed using the weighted average number of common shares outstanding, increased by the Company’s stock options, unless anti-dilutive.

The components of basic and diluted net income per common share available to common stockholders for thethree months ended March 31, 2025 and 2024 were as follows:

There wereno shares excluded when computing diluted earnings per share for thethree months ended March 31, 2025 and 2024 because they were anti-dilutive.

Note 3 -- Investment Securities

The amortized cost, gross unrealized gains and losses and estimated fair values for available-for-sale and held-to-maturity securities by major security type at March 31, 2025 and December 31, 2024 were as follows (in thousands):

The Company also had$4.5 million and$4.4 million of equity securities, at fair value, as of March 31, 2025 and December 31, 2024, respectively. The Company's held-to-maturity securities are annuities for which the risk of loss is minimal. As such, as of March 31, 2025, the Company did not record an allowance for credit losses on its held-to-maturity securities.

Realized gains and losses resulting from sales of securities were as follows during thethree months ended March 31, 2025 and 2024 (in thousands):

The following table indicates the expected maturities of investment securities classified as available-for-sale presented at fair value, and held-to-maturity presented at amortized cost, at March 31, 2025 and the weighted average yield for each range of maturities (dollars in thousands):

The weighted average yields are calculated based on the amortized cost and effective yields weighted for the scheduled maturity of each security. Tax-equivalent yields have been calculated using a 21% tax rate. With the exception of obligations of the U.S. Treasury and other U.S. government agencies and corporations, there were no investment securities of any single issuer, which the book value exceeded 10% of stockholders' equity at March 31, 2025.

Investment securities carried at approximately$529.8 million and$632.9 million at March 31, 2025 and December 31, 2024, respectively, were pledged to secure public deposits and repurchase agreements and for other purposes as permitted or required by law.

The following table presents the aging of gross unrealized losses and fair value by investment category as of March 31, 2025 and December 31, 2024 (in thousands):

U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies. At March 31, 2025 there were twenty-seven available-for-sale securities with a fair value of$183.4 million and unrealized losses of$18.1 million in a continuous unrealized loss position for twelve months or more. At December 31, 2024, there were twenty-nine available-for-sale securities with a fair value of$189.3 million and unrealized losses of$21.2 million in a continuous unrealized loss position for twelve months or more. There wereno held-to-maturity U.S. Treasury securities and obligations of U.S. government corporations and agencies in a continuous unrealized loss position for twelve months or more.

Obligations of states and political subdivisions. At March 31, 2025, there weretwo hundred fifty-one obligations of states and political subdivisions with a fair value of$237.1 million and unrealized losses of$60.8 million in a continuous unrealized loss position for twelve months or more. At December 31, 2024 there weretwo hundred forty-seven obligations of states and political subdivisions with a fair value of$241.5 million and unrealized losses of$55.2 million in a continuous unrealized loss position for twelve months or more.

Mortgage-backed Securities: GSE Residential. At March 31, 2025, there weretwo hundred thirty-three mortgage-backed securities with a fair value of$503.9 million and unrealized losses of$103.9 million in a continuous unrealized loss position for twelve months or more. At December 31, 2024, there weretwo hundred forty-one mortgage-backed securities with a fair value of$511.7 million and unrealized losses of$114.6 million in a continuous unrealized loss position for twelve months or more.

Other securities. At March 31, 2025, there were thirty-six other securities with a fair value of$53.2 million and unrealized losses of$2.2 million in a continuous unrealized loss position for twelve months or more. At December 31, 2024, there were forty other securities with a fair value of$58.7 million and unrealized losses of$2.7 million in a continuous unrealized loss position for twelve months or more.

The Company does not consider available-for-sale securities with unrealized losses at March 31, 2025, to be experiencing credit losses and recognized no resulting allowance for credit losses. The Company does not intend to sell these investments, and it is more likely than not that the Company will not be required to sell these investments before recovery of the amortized cost basis, which may be the maturity dates of the securities. The unrealized losses occurred as a result of changes in interest rates, market spreads and market conditions subsequent to purchase.

Note 4 – Loans and Allowance for Credit Losses

Loans are stated at amortized cost net of an allowance for credit losses. Amortized cost is the unpaid principal net of unearned premiums and discounts, and net deferred origination fees and costs. Deferred loan origination fees are reduced by loan origination costs and are amortized to interest income over the life of the related loan using methods that approximated the effective interest rate method. Interest on substantially all loans is credited to income based on the principal amount outstanding.

A summary of loans at March 31, 2025 and December 31, 2024 follows (in thousands):

Loans expected to be sold are classified as held for sale in the consolidated financial statements and are recorded at fair value, taking into consideration future commitments to sell the loans. These loans are primarily for 1-4 family residential properties.

Accrued interest on loans, which is excluded from the amortized cost of the balances above, totaled$31.7 million and$33.7 million at March 31, 2025 and December 31, 2024, respectively.

Most of the Company’s business activities are with customers located near the Company's branch locations in Illinois, Missouri, Texas, and Wisconsin. 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 corn and 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 due to seasonal timing of cash flow requirements. Loans concentrated in corn and other grain farming increased$65.5 million from$507.6 million at December 31, 2024. The Company's underwriting practices include 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 and most borrowers are below regulatory thresholds. The Company can occasionally have outstanding balances to one borrower up to but not exceeding the regulatory threshold should underwriting guidelines warrant. 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’s lending can be summarized into the following primary areas:

Commercial Real Estate Loans. Commercial real estate loans are generally comprised of loans to small business entities to purchase or expand structures in which the business operations are housed, loans to owners of real estate who lease space to non-related commercial entities, loans for construction and land development, loans to hotel operators, and loans to owners of multi-family residential structures, such as apartment buildings. Commercial real estate loans are underwritten based on historical and projected cash flows of the borrower and secondarily on the underlying real estate pledged as collateral on the debt. For the various types of commercial real estate loans, minimum criteria have been established within the Company’s loan policy regarding debt service coverage while maximum limits on loan-to-value and amortization periods have been defined. Maximum loan-to-value ratios range from 65% to 85% depending upon the type of real estate collateral, while the desired minimum debt coverage ratio is 1.20x to 1.35x. Amortization periods for commercial real estate loans are generally limited totwenty tothirty years, depending on the collateral type and loan-to-value. The Company’s commercial real estate portfolio is below the thresholds that would designate a concentration in commercial real estate lending, as established by the federal banking regulators.

The following table represents the gross commercial real estate loans by property type as of March 31, 2025 (in thousands):

Commercial and Industrial Loans. Commercial and industrial loans are primarily comprised of working capital loans used to purchase inventory and fund accounts receivable that are secured by business assets other than real estate. These loans are generally written forone year or less. Also, equipment financing is provided to businesses with these loans generally limited to 80% of the value of the collateral and amortization periods limited toseven years. Commercial loans are often accompanied by a personal guaranty of the principal owners of a business. Like commercial real estate loans, the underlying cash flow of the business is the primary consideration in the underwriting process. The financial condition of commercial borrowers is monitored at least annually with the type of financial information required determined by the size of the relationship. Measures employed by the Company for businesses with higher risk profiles include the use of government- assisted lending programs through the Small Business Administration and U.S. Department of Agriculture.

Agricultural and Agricultural Real Estate Loans. Agricultural loans are generally comprised of seasonal operating lines to cash grain farmers to plant and harvest corn and soybeans and term loans to fund the purchase of equipment. Agricultural real estate loans are primarily comprised of loans for the purchase of farmland. Specific underwriting standards have been established for agricultural-related loans including the establishment of projections for each operating year based on industry developed estimates of farm input costs and expected commodity yields and prices. Operating lines are typically written forone year and secured by the crop. Loan-to-value ratios on loans secured by farmland generally do not exceed 80% and have amortization periods ranging from twenty-five tothirty years depending on the loan-to-value. Federal government-assistance lending programs through the Farm Service Agency are used to mitigate the level of credit risk when deemed appropriate.

Residential Real Estate Loans. Residential real estate loans generally include loans for the purchase or refinance of residential real estate properties consisting of one-to-four units and home equity loans and lines of credit. The Company sells most of its long-term fixed rate residential real estate loans to secondary market investors. The Company also releases the servicing of these loans upon sale. Residential real estate loans are typically underwritten to conform to industry standards including criteria for maximum debt-to-income and loan-to-value ratios as well as minimum credit scores. Loans secured by first liens on residential real estate held in the portfolio typically do not exceed 80% of the value of the collateral and have amortization periods oftwenty-five years or less. The Company does not originate subprime mortgage loans.

Consumer Loans. Consumer loans are primarily comprised of loans to individuals for personal and household purposes such as the purchase of an automobile or other living expenses. Minimum underwriting criteria have been established that consider credit score, debt-to-income ratio, employment history, and collateral coverage. Typically, consumer loans are set up on monthly payments with amortization periods based on the type and age of the collateral.

Other Loans. Other loans consist primarily of loans to municipalities to support community projects such as infrastructure improvements or equipment purchases. Underwriting guidelines for these loans are consistent with those established for commercial loans with the additional repayment source of the taxing authority of the municipality.