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, 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.

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, 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.

Previous wording

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 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.

Current wording

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; 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 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.

Previous wording

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.

Current wording

Net income was $45.6 million and $40.2 million for the six months ended June 30, 2025 and 2024, respectively. Diluted net income per common share was $1.90 and $1.68 for the six months ended June 30, 2025 and 2024, respectively.

Previous wording

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:

Current wording

The following table shows the Company’s annualized performance ratios for six months ended June 30, 2025 and 2024, compared to the performance ratios for the year ended December 31, 2024:

Previous wording

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.

Current wording

Total assets were $7.7 billion at June 30, 2025, compared to $7.5 billion as of December 31, 2024. From December 31, 2024 to June 30, 2025, cash and cash equivalents increased $68.8 million, net loan balances increased $92.8 million and investment securities increased $13.7 million. Net loan balances were $5.7 billion at June 30, 2025 compared to $5.6 billion at December 31, 2024.

Previous wording

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.

Current wording

Net interest margin, on a tax equivalent basis, defined as net interest income divided by average interest-earning assets, was 3.66% for the six months ended June 30, 2025, up from 3.30% 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 credit losses was $123.3 million compared to net interest income of $112.2 million for the same period in 2024. The increase in net interest income was primarily due to the increased net interest margin as mentioned above.

Previous wording

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.

Current wording

Total non-interest income of $48.5 million increased $1.6 million or 3.3% from $46.9 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.

Previous wording

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.

Current wording

Total non-interest expense of $109.2 million increased $4.4 million or 4.2% from $104.8 million for the same period last year. The increase was primarily due to the routine annual increases in salaries and employee benefits, an increase in expense accrued for incentive compensation based on overperformance compared to the 2025 budget, and nonrecurring technology project expenses which were partially offset by the decrease in integration expenses compared to the first two quarters of 2024 related to Blackhawk Bank.

Previous wording

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.

Current wording

$19.1 million at June 30, 2024 and $29.8 million at December 31, 2024. See the discussion under the heading “Loan Quality and Allowance for Credit Losses” for a detailed explanation of these balances. Repossessed asset balances totaled $1.7 million at June 30, 2025 compared to $1.5 million at June 30, 2024 and $2.2 million at December 31, 2024.

Previous wording

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.

Current wording

The Company’s provision for credit losses for the six months ended June 30, 2025 and 2024 was $4.2 million and $726,000, respectively. Total loans past due 30 days or more were 0.57% of loans at June 30, 2025 compared to 0.42% at June 30, 2024, and 0.19% of loans at December 31, 2024. Loans secured by both commercial and residential real estate comprised approximately 68.2% of the loan portfolio as of June 30, 2025 and 68.4% as of December 31, 2024.

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, 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.

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, 2025 and 2024 and December 31, 2024 was 13.31%, 12.65% and 12.82%, respectively. The Company’s total capital to risk weighted assets ratio calculated under the regulatory risk-based capital requirements at June 30, 2025 and 2024, and December 31, 2024 was 15.76%, 15.46% and 15.37%, respectively.

Previous wording

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.

Current wording

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 June 30, 2025 and 2024, were $1.4 billion and $1.3 billion, respectively.

Previous wording

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

Current wording

The Company expensed $1.7 million and $1.8 million for the assessment during the first six months of 2025 and 2024, 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 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.

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 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 $1.5 million and $1.2 million for 2025 and 2024, respectively were 3.62% and 3.25% at June 30, 2025 and 2024, 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, 2025 and 2024 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, 2025 and 2024 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, 2025, compared to the same period in 2024 (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, 2025, compared to the same period in 2024 (in thousands):

Previous wording

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.

Current wording

Tax equivalent net interest income increased $11.3 million, or 10.0%, to $124.8 million for the six months ended June 30, 2025, from $113.4 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.

Previous wording

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.

Current wording

For the six months ended June 30, 2025, average earning assets increased $23.0 million, or 0.3%, and average interest-bearing liabilities decreased $66.4 million or 1.2% compared with average balances for the same period in 2024.

Previous wording

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

Current wording

Average interest-bearing deposits with other financial institutions decreased $41.6 million or 27.6%.

Previous wording

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

Current wording

Average federal funds sold decreased $484,000 or 86.6%.

Previous wording

Average certificates of deposits investments increased $1.6 million or 104.7%.

Current wording

Average certificates of deposits investments increased $192,000 or 7.3%.

Previous wording

Average loans increased by $81.6 million or 1.5%.

Current wording

Average loans increased by $148.2 million or 2.7%.

Previous wording

Average securities decreased by $94.6 million or 8.0%.

Current wording

Average securities decreased by $83.3 million or 7.1%.

Previous wording

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

Current wording

Average interest-bearing customer deposits increased by $39.9 million or 0.8%.

Previous wording

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

Current wording

Average securities sold under agreements to repurchase decreased by $34.6 million or 14.7%.

Previous wording

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

Current wording

Average borrowings and other debt decreased by $71.6 million or 18.6%.

Previous wording

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

Current wording

Net interest margin increased to 3.66% for the first six months of 2025 from 3.30% for the first six months of 2024.

Previous wording

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.

Current wording

The provision for credit losses for the six months ended June 30, 2025 and 2024 was $4.2 million and $726,000, respectively. Net charge offs were $3.2 million for the six months ended June 30, 2025, compared to net charge offs of $1.1 million for June 30, 2024. Nonperforming loans were $21.9 million and $19.1 million as of June 30, 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 Credit 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, 2025 and 2024 (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, 2025 and 2024 (in thousands):

Previous wording

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:

Current wording

Following are explanations of the significant changes in these other income categories for the three and six months ended June 30, 2025 compared to the same period in 2024:

Previous wording

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

Current wording

Wealth management revenues increased for the six month period due to increased brokerage fees and agricultural services fee incomes.

Previous wording

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.

Current wording

Bank owned life insurance income increased approximately $580,000 during the first six months of 2025 compared to the same period in 2024 primarily due the gain recognized on a death claim filed in 2025.

Previous wording

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.

Current wording

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

Previous wording

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

Previous wording

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:

Current wording

Following are explanations for the significant changes in these other expense categories for the three and six months ended June 30, 2025 compared to the same period in 2024:

Previous wording

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.

Current wording

The increase in salaries and employee benefits, the largest component of other expense, is primarily due to regularly scheduled annual raises and increase in expense accrued for incentive compensation to be paid in 2026 based on overperformance compared to the 2025 budgeted net income. Additionally, there is an increase of salary and employee benefits due to the acquisition of MRIG during the third quarter of 2024. There were 1,190 and 1,185 full-time equivalent employees at June 30, 2025 and 2024, respectively.

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

Total income tax expense amounted to $12.7 million (21.7% effective tax rate) for the six months ended June 30, 2025, compared to $13.4 million (25.0% 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, a decrease in nondeductible expenses, and the state of Illinois law change that became effective during the second quarter of 2024 and required a one-time revalue of deferred taxes.

Previous wording

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):

Current wording

At June 30, 2025, the Company’s investment portfolio decreased by $1.7 million from December 31, 2024 primarily due to the sale of three securities, paydowns, calls and maturities of various securities mostly offset by the purchase of fifteen 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 June 30, 2025 for investment securities (in thousands):