10-Q: First Mid Bancshares Reports Strong Q3 Earnings Growth

First Mid Bancshares, Inc. reported increased net income and diluted EPS for the nine months ended September 30, 2025, alongside strategic acquisitions and a planned merger.

Summary

• Net income for the nine months ended September 30, 2025, increased to $68.071 million, up from $59.730 million in the prior year.
• Diluted net income per common share rose to $2.84 for the nine months ended September 30, 2025, compared to $2.49 for the same period in 2024.
• Total assets grew to $7.830 billion as of September 30, 2025, from $7.519 billion at December 31, 2024.
• Net loan balances increased by $149.9 million to $5.745 billion at September 30, 2025.
• Net interest income before provision for credit losses increased by $19.857 million to $189.635 million for the nine months ended September 30, 2025.
• The net interest margin, on a tax equivalent basis, improved to 3.71% for the first nine months of 2025, up from 3.32% in the prior year.
• The provision for credit losses significantly increased to $7.572 million for the nine months ended September 30, 2025, compared to $1.992 million in 2024.
• Total nonperforming loans increased to $22.2 million at September 30, 2025, from $18.2 million at September 30, 2024.
• The company entered into an agreement to acquire Two Rivers Financial Group, Inc., with the merger anticipated in the first half of 2026, involving approximately 2,556,140 shares of First Mid common stock.
• A new stock repurchase program was approved on June 24, 2025, authorizing the repurchase of up to 1.2 million shares, with approximately $45.5 million in remaining capacity as of September 30, 2025.

Sentiment

Score: 6

Explanation: The filing presents a mixed but generally positive financial performance with strong growth in net income, EPS, and net interest margin. However, a notable increase in the provision for credit losses and nonperforming loans indicates deteriorating credit quality, which is a significant concern for a financial institution. Strategic acquisitions and strong capital ratios provide a positive long-term outlook, but credit risks temper overall enthusiasm.

Positives

• Net income increased by $8.341 million to $68.071 million for the nine months ended September 30, 2025, compared to the same period in 2024.
• Diluted net income per common share increased to $2.84 from $2.49 year-over-year.
• Return on average assets improved to 1.19% from 1.05% and return on average common equity increased to 10.32% from 9.89% for the nine months ended September 30, 2025.
• Net interest income increased by $19.857 million, or 11.5%, driven by higher earning asset yields and decreased rates on interest-bearing deposits and borrowings.
• Net interest margin (tax equivalent) expanded to 3.71% from 3.32% year-over-year.
• Insurance commissions increased by $3.107 million, or 14.3%, primarily due to acquisitions.
• The company's capital position remains strong, with Tier 1 capital to risk-weighted assets at 13.53% and total capital to risk-weighted assets at 15.99%, both above well-capitalized standards.
• Accumulated other comprehensive loss improved, with net unrealized losses on available-for-sale securities decreasing to $(150.721) million from $(194.144) million.
• Liquidity position is sufficient, supported by various sources including $1.6 billion in additional FHLB advances capacity and a $331.1 million contingent liquidity position from the Federal Reserve Bank's BIC program.

Negatives

• Provision for credit losses significantly increased to $7.572 million for the nine months ended September 30, 2025, from $1.992 million in the prior year, indicating a deterioration in credit quality.
• Total nonperforming loans increased to $22.2 million at September 30, 2025, from $18.2 million at September 30, 2024.
• Total loans past due 30 days or more increased to 0.50% of loans at September 30, 2025, from 0.39% at September 30, 2024.
• The ratio of allowance for credit losses to nonperforming loans decreased to 329% from 377% year-over-year, suggesting less coverage for nonperforming assets.
• Net charge-offs increased to $4.8 million for the nine months ended September 30, 2025, compared to $1.9 million in 2024.
• Total other expense increased by $7.694 million, or 4.8%, primarily due to higher salaries and employee benefits and nonrecurring technology project expenses.
• Wealth management revenues decreased by $193,000, or 1.2%, due to lower agricultural services fee income.
• Investment securities losses, net, increased significantly to $(2.111) million from $(433,000) year-over-year, although attributed to strategic sales for higher yields.
• Net cash used in investing activities was $(139.286) million for the nine months ended September 30, 2025, a significant shift from $39.451 million provided in the prior year.

Risks

• Exposure to interest rate risk, liquidity risk, credit risk, and operational risk, which could negatively impact financial condition and results of operations.
• Concentration of loans in agriculture (Illinois, Missouri, Texas, Wisconsin), particularly corn and other grain farming ($579.6 million), making the company vulnerable to low commodity prices, drought, or reduced government assistance.
• Concentration of loans to motels and hotels ($222.4 million), dependent on business and personal travel, posing risk during prolonged periods of reduced travel.
• Concentration of loans to lessors of non-residential buildings ($1.0 billion) and residential buildings and dwellings ($604.8 million), subject to real estate market conditions.
• Potential for increased nonperforming loans and loan losses if economic uncertainties (e.g., reduced cash flow, decreased occupancy rates, grain price uncertainty, unemployment) persist or worsen.
• The company is liability sensitive in the short term, indicating that future increases in interest rates could adversely affect net interest income.
• General economic conditions and monetary/fiscal policies of the U.S. Government, including the U.S. Treasury and Federal Reserve Board, could impact financial results.

Future Outlook

The company anticipates the merger with Two Rivers Financial Group, Inc. to be completed in the first half of 2026, subject to regulatory and shareholder approvals. Management expects no material impact on financial statements from 'The One Big Beautiful Bill Act' signed into law on July 4, 2025. The company continues to monitor interest rate sensitivity and manage its exposure to interest rate changes through its ALCO committee.

Management Comments

• Management believes that the disposition or ultimate resolution of claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Company.
• Management believes that, as of September 30, 2025 and December 31, 2024, the Company and First Mid Bank, as applicable, met all capital adequacy requirements.
• Management continues to monitor its expected liquidity requirements carefully, focusing primarily on cash flows from lending, deposit, investing, and operating activities.
• Joseph R. Dively, Chief Executive Officer, and Jordan D. Read, Chief Financial and Risk Officer, certified that the report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Industry Context

The banking industry continues to navigate a dynamic interest rate environment. First Mid Bancshares' improved net interest margin reflects effective asset-liability management in this context. The increase in provision for credit losses and nonperforming loans, while a concern, is a trend many regional banks are experiencing as economic conditions tighten and higher rates impact borrowers. The strategic acquisitions in the insurance sector and the planned bank merger indicate a focus on diversification and inorganic growth, common strategies for regional banks seeking to expand market share and revenue streams amidst competitive pressures.

Comparison to Industry Standards

• The company's commercial real estate portfolio is below the thresholds of 300% of total capital that would designate a concentration in commercial real estate lending, as established by federal banking regulators, indicating prudent risk management compared to regulatory benchmarks.
• The construction and land development portfolio is below the thresholds of 100% of total capital that would designate a concentration in this lending type, aligning with federal banking regulator guidelines.
• The company's capital ratios (Tier 1 capital to risk-weighted assets at 13.53% and total capital to risk-weighted assets at 15.99%) exceed the 'well-capitalized' standards set by federal banking agencies (8.00% and 10.00% respectively for Tier 1 and Total Capital for banks), demonstrating a strong capital buffer relative to regulatory requirements.
• The company does not originate subprime mortgage loans, adhering to sound underwriting standards consistent with industry best practices for residential real estate lending.

Management Changes

Corporate Governance

Legal Proceedings

• The company is subject to claims and lawsuits arising in the ordinary course of business, none of which are believed to be individually material at this time.

Stakeholder Impact

• Shareholders: Potential for increased value through improved profitability, strategic acquisitions, and the stock repurchase program, but also face risks from deteriorating credit quality and economic uncertainties.
• Employees: Benefit from stock incentive plans (SI Plan, ESPP) designed to foster proprietorship and involvement in the company's success, as well as annual raises and incentive compensation.
• Customers: Benefit from expanded services through acquisitions (e.g., insurance customer lists) and continued access to financing, though loan underwriting standards remain consistent.
• Creditors: Strong capital position and sufficient liquidity sources provide assurance regarding the company's ability to meet financial obligations.

Next Steps

• Complete the merger with Two Rivers Financial Group, Inc. in the first half of 2026, subject to regulatory and shareholder approvals.
• Continue to monitor and manage interest rate sensitivity through the asset liability management committee (ALCO).
• Discretionary repurchases of common stock under the 2025 Repurchase Program, depending on market conditions and other factors.
• Prepare for the adoption of ASU 2024-03 and ASU 2023-09 for future financial statement disclosures.

Key Dates

Recommendation

First Mid Bancshares demonstrates solid profitability growth, with increased net income, EPS, and an expanding net interest margin. Strategic acquisitions and a strong capital base position the company for future growth. However, the significant increase in the provision for credit losses and rising nonperforming loans indicate a deterioration in asset quality, which is a key concern for banking institutions. While the company is managing through a challenging environment, the credit quality trends warrant caution. A 'hold' recommendation allows investors to maintain their position while monitoring how the company manages these credit risks and integrates its new acquisitions, balancing the positive financial performance against the emerging credit headwinds.

Keywords

Banking, Financial Services, Regional Bank, SEC Filing, 10-Q, Net Income, EPS, Loan Portfolio, Credit Quality, Net Interest Margin, Capital Ratios, Acquisition, Merger, Stock Repurchase, Interest Rate Risk, Liquidity, Wealth Management, Insurance Commissions