10-K: First Mid Bancshares Reports Strong Capital Position in 2023 Annual Filing

First Mid Bancshares' 2023 annual report highlights a strong capital position and strategic growth through acquisitions, despite a slight decrease in net interest margin.

Summary

• First Mid Bancshares, Inc. reported a net income of $68.9 million for the year ended December 31, 2023, compared to $73.0 million in 2022.
• Diluted earnings per share were $3.15 in 2023, down from $3.60 in 2022.
• Total assets increased to $7.59 billion in 2023 from $6.74 billion in 2022, primarily due to the acquisition of Blackhawk Bank.
• Net loan balances rose to $5.51 billion in 2023, up from $4.77 billion in 2022, with a significant portion attributed to the Blackhawk acquisition.
• Total deposit balances increased to $6.12 billion in 2023 from $5.26 billion in 2022, also influenced by the Blackhawk acquisition.
• The net interest margin decreased to 3.05% in 2023 from 3.13% in 2022, primarily due to higher interest rates driving increased funding costs.
• Non-interest income increased to $86.8 million in 2023, compared to $74.7 million in 2022, driven by the Blackhawk acquisition and increased insurance revenues.
• Non-interest expenses increased to $185.7 million in 2023, compared to $162.9 million in 2022, due to the Blackhawk acquisition and related integration costs.
• The company's Tier 1 capital ratio to risk-weighted assets was 12.02% at December 31, 2023, compared to 12.40% in 2022.
• The total capital to risk-weighted assets ratio was 14.84% at December 31, 2023, compared to 15.20% in 2022.
• The company's liquidity position remains sufficient to fund operations and meet the requirements of borrowers, depositors, and creditors.

Sentiment

Score: 6

Explanation: The document presents a mixed picture with strong growth metrics offset by decreased profitability and margin compression. The company's strong capital position and strategic growth are positive, but the challenges in the current economic environment and increased expenses temper the overall sentiment.

Positives

• The company experienced significant growth in total assets, net loans, and total deposits.
• Non-interest income increased due to strategic acquisitions and growth in insurance revenues.
• The company maintains a strong capital position, exceeding regulatory requirements.
• The company's liquidity position is sufficient to meet its financial obligations.
• Employee engagement remains high with 98.4% participation in the annual survey.

Negatives

• Net income decreased from $73.0 million in 2022 to $68.9 million in 2023.
• The net interest margin decreased from 3.13% to 3.05% due to higher funding costs.
• Non-interest expenses increased significantly due to acquisitions and related costs.
• The company experienced a slight increase in nonperforming loans from $19.2 million to $20.1 million.

Risks

• The company is exposed to credit risk, interest rate risk, and liquidity risk.
• Changes in interest rates may negatively affect earnings.
• A failure in or breach of the company's operational or security systems could disrupt business.
• Difficult economic conditions and market disruption could adversely impact the company.
• Climate change could have a material negative impact on the company and its customers.
• The company faces substantial competition in all areas of its operations.

Future Outlook

The company intends to continue its growth strategy through organic growth and strategic acquisitions, while maintaining a strong balance sheet and increasing profits.

Management Comments

• Management believes a diverse workforce is critical to sustainable success.
• Management attempts to grow in two primary ways: by organic growth and by strategic acquisitions.
• Management believes that the overall estimate of the allowance for credit losses appropriately accounts for probable losses attributable to current exposures.

Industry Context

The report reflects the ongoing trend of consolidation in the banking industry, with First Mid Bancshares actively pursuing growth through acquisitions. The decrease in net interest margin is consistent with the challenges faced by many banks due to rising interest rates and increased funding costs.

Comparison to Industry Standards

• The company's credit loss experience has been good with average net charge offs amounting to $3.8 million (0.08% of total loans) over the past five years, which compares well with peer financial institutions.
• Nonperforming loans were $20.1 million (0.36% of total loans) at December 31, 2023, which is a low percentage compared to industry averages.
• The company's capital ratios exceeded those required for categorization as well-capitalized under the capital adequacy guidelines established by bank regulatory agencies, indicating a strong financial position compared to industry benchmarks.
• The company's net interest margin decreased to 3.05% as of December 31, 2023, from 3.13% in December 31, 2022, which is a common trend in the banking industry due to higher interest rates driving increased funding costs.

Management Changes

Legal Proceedings

• The Company and its subsidiaries may be involved in litigation that the Company believes is a type common to our industry.

Related Party Transactions

• Certain officers, directors and principal stockholders of the Company and its subsidiaries, their immediate families or their affiliated companies (related parties) have loans with one or more of the subsidiaries.
• These loans are made in the ordinary course of business on substantially the same terms, including interest and collateral, as those prevailing for comparable transactions with others.
• Loans to related parties totaled approximately $248.7 million and $169.7 million at December 31, 2023 and 2022, respectively.
• Deposits from related parties held by First Mid Bank at December 31, 2023 and 2022 totaled $37.7 million and $31.2 million, respectively.

Stakeholder Impact

• Shareholders may experience stock price appreciation and receive dividends.
• Employees benefit from a competitive total rewards package and development opportunities.
• Customers benefit from a wide array of financial services and community engagement.
• Communities benefit from the company's investment and volunteerism.

Next Steps

• The company will continue to focus on organic growth and strategic acquisitions.
• Management will continue to monitor and manage credit, interest rate, and liquidity risks.
• The company will continue to invest in its workforce and communities.

Key Dates

Keywords

acquisitions, capital, loans, deposits, net interest margin, financial results, risk management, banking, financial services, credit quality