8-K: First Mid Bancshares Reports Strong Q3 2025, Announces Two Acquisitions

First Mid Bancshares, Inc. reported solid third-quarter 2025 financial results, marked by expanding net interest margin and growth in loans and deposits, alongside strategic acquisitions and operational efficiencies.

Summary

• Net income for the third quarter of 2025 was $22.5 million, or $0.94 diluted EPS, with adjusted net income reaching $23.3 million, or $0.97 diluted EPS.
• Net interest income increased by $2.5 million, or 3.9%, to $66.4 million compared to the prior quarter, marking the sixth consecutive quarter of growth.
• The net interest margin, on a tax equivalent basis, expanded by 8 basis points to 3.80% for the quarter.
• Total loans grew by $57.0 million, or 1.0%, to $5.82 billion from the prior quarter, with a diversified increase across construction, commercial real estate, agriculture operating lines, and commercial and industrial loans.
• Total deposits increased by $99.3 million, or 1.6%, to $6.29 billion, primarily driven by a 9.7% growth in non-interest-bearing demand deposits.
• Tangible book value per share increased by 6.0% during the quarter to $28.21, and by 14% over the past 12 months.
• Announced the pending acquisition of Two Rivers Financial Group, Inc., expanding the company's footprint into Iowa and diversifying services.
• Announced the pending acquisition of Ray Farm Management Services, Inc., expected to close in Q4 2025 and add approximately 9,000 acres under management.
• Completed a core operating system conversion and a branch optimization project, closing 8 full-service branches.
• The Board of Directors declared a regular quarterly dividend of $0.25 per share.
• Asset quality remained strong, with the allowance for credit losses (ACL) at $72.9 million, representing 1.25% of total loans, and non-performing loans to total loans at 0.38%.

Sentiment

Score: 8

Explanation: The company reported strong financial performance with significant growth in key metrics like net interest income, NIM, loans, and deposits. Strategic acquisitions and operational efficiencies are positive indicators for future growth. While there was a slight dip in non-interest income and an increase in substandard loans, the overall outlook is positive, supported by strong capital and asset quality.

Positives

• Net interest income grew by 3.9% quarter-over-quarter to $66.4 million, and 15.3% year-over-year.
• Net interest margin (tax equivalent) expanded by 8 basis points to 3.80%, driven by higher earning asset yields and stable funding costs.
• Total loans increased by 1.0% to $5.82 billion, with diversified growth across key segments.
• Total deposits increased by 1.6% to $6.29 billion, with strong growth in non-interest-bearing demand deposits (9.7%).
• Tangible book value per share increased by 6.0% during the quarter to $28.21, and 14% over the last 12 months.
• Announced two strategic acquisitions (Two Rivers Financial Group and Ray Farm Management Services) expected to diversify footprint and revenue.
• Completed core operating system conversion and branch optimization, enhancing efficiency.
• Asset quality remained strong, with non-performing loans to total loans at 0.38% and ACL to non-performing loans at 328.5%.
• Capital levels remained strong and above well-capitalized thresholds, with Common Equity Tier 1 Capital Ratio at 13.13% and Total Capital Ratio at 15.99%.

Negatives

• Non-interest income decreased slightly to $22.9 million from $23.6 million in the prior quarter.
• A net loss of $1.9 million was realized on the sale of low-yielding bonds.
• Wealth management revenues decreased by $0.2 million from the prior quarter and $0.7 million from Q3 2024, primarily due to lower commodity prices.
• Ag Services revenue decreased to $1.8 million from $2.3 million in the prior quarter.
• Non-interest expenses increased to $57.1 million from $54.8 million in the prior quarter, partly due to one-time costs associated with branch closures and technology enhancements.
• Substandard loans increased by $36.3 million to $75.3 million, driven by downgrades of three relationships in varying industries and geographies.

Risks

• The possibility that any anticipated benefits of the proposed transactions with Two Rivers Financial Group will not be realized within the expected time period.
• The risk that integration of the operations of Two Rivers with First Mid will be materially delayed or will be more costly or difficult than expected.
• The inability to complete the proposed transactions due to the failure to satisfy conditions, including failure to obtain required regulatory, shareholder, and other approvals.
• The failure of the proposed transactions to close for any other reason.
• The effect of the announcement of the proposed transactions on customer relationships and operating results.
• The possibility that the proposed transactions may be more expensive to complete than anticipated, including as a result of unexpected factors or events.
• Changes in interest rates.
• General economic conditions and those in the market areas of First Mid and Two Rivers.
• 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 and Two Rivers' loan or investment portfolios and the valuation of those investment portfolios.
• Demand for loan products.
• Deposit flows.
• Competition and demand for financial services in the market areas of First Mid and Two Rivers.
• Accounting principles, policies, and guidelines.

Future Outlook

The company anticipates continued strategic expansion through acquisitions, including the pending acquisition of Two Rivers Financial Group to diversify its footprint into Iowa and the acquisition of Ray Farm Management Services to enhance its Ag Services. Management expects to realize cost savings and process efficiencies from the recently completed core operating system conversion and branch optimization project, which will support future growth. The company is committed to further digital expansion in response to evolving customer needs.

Management Comments

• Matthew Smith, President, stated, "The third quarter reflected solid financial and operating performance led by further expansion of our net interest margin while delivering growth in both loans and deposits. We executed on our strategic plan to drive greater efficiency by completing the conversion of our core operating system in late October and closing 8 full-service branches across our footprint during the quarter. The branch closures align with the continued migration in customer preferences to a more digital first mindset. The core system conversion will not only provide cost savings, but will also provide process efficiencies that will set us up well for future growth."
• Joseph Dively, Chairman and CEO, commented, "I am excited to announce the pending acquisition of Two Rivers Financial Group, Inc. as we continue to diversify our footprint and enter the state of Iowa. We are honored to have been chosen as their strategic partner. Two Rivers has a long history of providing value to their customers through their banking, trust, and wealth management services. We completed extensive due diligence and solidified our view that our cultures are closely aligned with a focus on community banking."

Industry Context

The company's strategic acquisitions and focus on digital transformation align with broader industry trends of consolidation, geographic diversification, and adapting to evolving customer preferences for digital banking services. The emphasis on non-interest income, particularly through insurance, wealth management, and Ag services, reflects a strategy to diversify revenue streams beyond traditional lending, a common approach among regional banks seeking stability in varying interest rate environments. The strong asset quality metrics and conservative risk profile are favorable in a banking sector facing potential economic uncertainties.

Comparison to Industry Standards

• The company's 20-year average net charge-off rate of 0.14% significantly outperforms the US banking industry average of 84 basis points per year since 2005, demonstrating superior credit quality and risk management.
• With 92.6% core deposits as of September 30, 2025, the company maintains a high-quality, stable deposit franchise, which is a strong indicator of funding stability compared to peers reliant on more volatile funding sources.
• The low level of uninsured deposits, approximately 27%, and an average account balance of approximately $23,000, with 99% of all accounts under a $250,000 balance, indicate a granular and stable deposit base, which is generally more resilient than those with a higher concentration of large, uninsured deposits.
• The Ag loan portfolio, representing 12% of outstanding loans, with 54% in farmland and a 45% LTV, is positioned in a historically stable asset class that has outperformed major classes with double-digit total annual returns over multiple decades, with low volatility, contrasting with more cyclical loan segments.

Stakeholder Impact

• Shareholders: Positive impact due to strong financial performance, increased tangible book value per share, declared dividend, and potential for future EPS accretion from strategic acquisitions.
• Customers: Potential for expanded services and geographic reach through acquisitions, but also adjustments due to branch closures and migration to digital platforms.
• Employees: Integration efforts for new acquisitions will impact employees of both First Mid and acquired entities; potential for new roles and synergies.
• Communities: Continued commitment to community banking heritage, with expanded presence in new markets through acquisitions.

Next Steps

• Complete the pending acquisition of Two Rivers Financial Group, Inc.
• Complete the pending acquisition of Ray Farm Management Services, Inc. in the fourth quarter of 2025.
• Continue digital expansion initiatives to meet changing customer behaviors and needs.

Key Dates

Recommendation

First Mid Bancshares demonstrated robust financial performance in Q3 2025 with significant growth in net interest income, expanding net interest margin, and healthy loan and deposit growth. The announced acquisitions of Two Rivers Financial Group and Ray Farm Management Services are strategic moves expected to diversify the company's footprint and revenue streams, leading to future EPS accretion. Strong capital levels, disciplined credit culture, and a consistent dividend further enhance its investment appeal, suggesting a positive outlook for long-term value creation despite some short-term increases in non-interest expenses related to strategic initiatives.

Keywords

Banking, Financial Services, Community Bank, Wealth Management, Insurance, Ag Services, Acquisitions, Net Interest Margin, Loans, Deposits, SEC Filing, FMBH, First Mid Bancshares, Two Rivers Financial Group, Ray Farm Management