425: First Mid Bancshares to Acquire Two Rivers Financial Group

First Mid Bancshares, Inc. announced a definitive agreement to acquire Two Rivers Financial Group, Inc. in an all-stock transaction valued at approximately $94.1 million.

Summary

• First Mid Bancshares, Inc. (First Mid) will acquire Two Rivers Financial Group, Inc. (Two Rivers) in a 100% stock transaction.
• Each outstanding share of Two Rivers common stock will be converted into 1.225 shares of First Mid common stock.
• The aggregate consideration payable by First Mid is approximately 2,556,140 shares of First Mid common stock, valued at approximately $94.1 million based on First Mid's closing price of $36.80 on October 28, 2025.
• Two Rivers Bank & Trust, with approximately $1.1 billion in total assets, $901 million in loans, and $988 million in deposits as of September 30, 2025, will merge into First Mid Bank & Trust, N.A. following the parent company merger.
• The transaction is estimated to be approximately 12.3% accretive to First Mid's earnings per share in 2027.
• Estimated tangible book value per share dilution to First Mid is expected to be earned back in 2.1 years.
• First Mid anticipates achieving cost savings of approximately 27% of Two Rivers' noninterest expense, with 50% phased in 2026 and 100% in subsequent years.
• The combined entity is projected to maintain a strong capital position with a pro forma CET1 ratio of approximately 12.8%.
• The merger is expected to close in the first quarter of 2026, subject to regulatory and Two Rivers stockholder approvals.

Sentiment

Score: 8

Explanation: The filing presents a strategically sound acquisition with strong financial projections, including significant EPS accretion and a short tangible book value earnback period. Management comments are positive, emphasizing cultural alignment and growth. While there is dilution and integration costs, the overall outlook is favorable.

Positives

• The transaction is estimated to be approximately 12.3% accretive to First Mid's earnings per share in 2027, indicating a positive financial impact.
• The tangible book value per share dilution is expected to be earned back in a relatively short period of 2.1 years.
• First Mid anticipates significant cost savings of approximately 27% of Two Rivers' noninterest expense, enhancing operational efficiency.
• The acquisition expands First Mid's presence into attractive Iowa markets, providing geographic diversification and growth opportunities.
• Two Rivers brings a low-cost, core deposit engine with 93% core deposits and a Q3 cost of total deposits of 1.93%, strengthening the combined funding profile.
• The pro forma CET1 ratio of approximately 12.8% demonstrates a robust capital position post-merger, supporting future growth and M&A.
• The acquisition adds $1.2 billion in trust and wealth management assets under management (AUM) from Two Rivers, increasing First Mid's pro forma wealth AUM to $7.6 billion.

Negatives

• The transaction will result in an estimated tangible book value per share dilution of approximately 4.3% for First Mid.
• One-time pre-tax merger expenses are estimated at $14.5 million, which will impact short-term financial results.
• A total gross credit mark of $11.6 million pre-tax (1.3% of Two Rivers' loans) will be applied, reflecting potential loan losses.
• Significant loan interest rate write-downs of $38.3 million and AFS securities portfolio AOCI of $16.2 million are anticipated.

Risks

• Anticipated benefits of the proposed transactions may not be realized within the expected time period.
• Integration of Two Rivers' operations with First Mid may be materially delayed or prove more costly or difficult than expected.
• The proposed transactions may not be completed due to failure to satisfy conditions, including required regulatory, shareholder, and other approvals.
• The announcement of the proposed transactions could negatively affect customer relationships and operating results.
• The proposed transactions may be more expensive to complete than anticipated due to unexpected factors or events.
• Changes in interest rates could adversely affect the financial performance of the combined entity.
• General economic conditions in the market areas of First Mid and Two Rivers could impact results.
• Legislative and/or regulatory changes, as well as monetary and fiscal policies of the U.S. Government, Treasury, and Federal Reserve Board, could affect the merger's outcome.
• The quality or composition of loan or investment portfolios and their valuation could pose risks.
• Demand for loan products, deposit flows, and competition in financial services markets could impact performance.
• Changes in accounting principles, policies, and guidelines could affect financial reporting.

Future Outlook

The merger is anticipated to close in the first quarter of 2026, with the bank merger and systems conversion expected in late second quarter of 2026. First Mid projects significant EPS accretion of approximately 12.3% in 2027 and a tangible book value per share earnback period of 2.1 years. The combined entity is expected to maintain a strong capital position and achieve substantial cost savings, although revenue synergies have not been included in current estimates.

Management Comments

• Joseph R. Dively, Chairman and CEO of First Mid, stated: "We are excited to welcome Two Rivers employees, customers and shareholders to First Mid. This partnership is an exciting step forward for our organization as we expand into a neighboring state, demonstrating our commitment to continued growth and geographic diversification."
• Frank Delaney, Chairman and Interim CEO of Two Rivers Financial Group, commented: "We are pleased to announce that we are entering into a merger with an organization that not only brings strong financial performance and scale, but one that also shares our deep commitment to community banking. Partnering with First Mid aligns with our core values and will position us to serve our customers even more effectively."
• Shane Zimmerman, CEO and President of Two Rivers Bank & Trust, added: "The institution we're joining has a proven track record of excellence and stability, and like us, they believe in building lasting relationships, supporting local communities, and taking a long-term view. Together, we will remain focused on what matters most—our people, our customers, and the communities we proudly serve."

Industry Context

This acquisition represents a strategic move by First Mid to expand its geographic footprint into neighboring Iowa markets, aligning with a broader trend of consolidation within the community banking sector. The focus on a high-quality community bank with a strong core deposit base reflects an industry emphasis on stable funding and market leadership in attractive regions. The anticipated cost savings and EPS accretion are typical drivers for such mergers, aiming to enhance shareholder value through increased scale and efficiency in a competitive financial landscape.

Comparison to Industry Standards

• Two Rivers' Q3 cost of total deposits at 1.93% is favorable compared to the average for Midwest Banks with $1B-$3B in assets, which was 2.12% in Q3 2025, indicating a strong, low-cost funding base.
• First Mid has a proven track record of successful integrations, having completed 6 whole-bank acquisitions over the last 10 years, suggesting a disciplined and experienced approach to M&A that aligns with best practices for achieving synergy targets.
• The pro forma loan/deposit ratio is expected to remain stable at 92%, which is a healthy level within industry standards, indicating balanced asset and liability management.
• First Mid's rigorous credit underwriting, with average net charge-offs of 15 basis points over the past two decades, and Two Rivers' comparable credit philosophy, suggest a combined entity with strong credit quality management, often a key differentiator in the banking industry.

Management Changes

Corporate Governance

Stakeholder Impact

• Shareholders of Two Rivers will receive First Mid common stock, becoming shareholders in the larger combined entity, with an expected 12.3% EPS accretion for First Mid in 2027.
• Employees of Two Rivers will either continue under existing benefit plans or become eligible for First Mid's plans, with provisions for service credit, waived pre-existing conditions, and severance for qualifying involuntary terminations.
• Customers of Two Rivers will benefit from expanded financial services, including broader commercial lending, treasury, insurance, and wealth management solutions, while retaining customer-facing staff and branches.
• Directors and officers of Two Rivers will receive continued insurance coverage and indemnification for pre-merger actions, and key leadership will transition to new roles within First Mid.

Next Steps

• First Mid will file a registration statement on Form S-4 with the SEC, including a proxy statement for Two Rivers shareholders.
• Two Rivers will hold a shareholders meeting to approve the Merger Agreement.
• Regulatory approvals from appropriate Governmental Authorities must be obtained.
• The Merger is anticipated to close in the first quarter of 2026.
• Two Rivers Bank & Trust will merge with and into First Mid Bank & Trust, N.A. at a date following the completion of the Merger, with banking offices becoming branches of First Mid Bank.
• Two Rivers will cause its Board of Directors to adopt resolutions and an amendment to the ESOP providing for its termination no later than the Closing Date, and will file an application with the IRS for a favorable determination letter.

Key Dates

Recommendation

The acquisition of Two Rivers Financial Group by First Mid Bancshares presents a compelling strategic and financial opportunity. The projected 12.3% EPS accretion in 2027 and a short 2.1-year tangible book value earnback period indicate strong value creation. The deal expands First Mid's presence into attractive, growing Iowa markets with a high-quality, low-cost deposit franchise, enhancing geographic diversification and funding stability. Anticipated cost savings of 27% further bolster profitability. While there is initial tangible book value dilution and merger-related expenses, the robust pro forma capital position and First Mid's proven integration track record suggest a high likelihood of successful execution and long-term shareholder value enhancement. This transaction is a clear positive for First Mid's growth trajectory and financial performance.

Keywords

Banking, Merger, Acquisition, Financial Services, Iowa, Illinois, Community Bank, First Mid Bancshares, Two Rivers Financial Group, Stock Transaction, EPS Accretion, Tangible Book Value, Regulatory Approval