First Mid Bancshares, Inc. (NASDAQ:FMBH) is a diversified financial services company with a strong footprint in the Midwestern United States. Headquartered in Mattoon, Illinois, the company has a rich history dating back to its founding in 1865 as a local bank serving the agricultural needs of the region. Over the decades, First Mid has evolved into a multi-faceted financial institution, offering a comprehensive suite of banking, wealth management, and insurance services to individuals and businesses across Illinois, Missouri, Texas, and Wisconsin.

Business Overview and History

First Mid Bancshares, Inc. was founded in 1982 as a holding company for First Mid Bank & Trust, N.A., which traces its roots back to 1865. The company has grown significantly through a series of strategic acquisitions, expanding its footprint across multiple states in the Midwest. One of the most notable milestones in the company's recent history was the acquisition of Blackhawk Bancorp, Inc. in 2023, which allowed First Mid to deepen its presence in southern Wisconsin and gain additional scale and capabilities in wealth management and insurance.

Throughout its long history, First Mid has demonstrated resilience in the face of various challenges. During the financial crisis of the late 2000s, the company maintained solid asset quality despite economic headwinds. More recently, First Mid showcased its operational resilience during the COVID-19 pandemic by quickly adapting to remote work and providing support to customers and communities during that difficult period.

The company has remained committed to its community banking model, focusing on building deep relationships with customers and providing personalized service. This approach, combined with its diversified business lines, has helped First Mid weather various economic cycles and deliver consistent financial results for shareholders.

Today, First Mid Bancshares, Inc. operates through its main subsidiary, First Mid Bank & Trust, N.A., which has a network of 150 branches across its four-state footprint. The company's diverse business lines include traditional community banking, as well as wealth management services through First Mid Wealth Management and insurance services through First Mid Insurance Group. This diversified model has helped the company weather economic cycles and regulatory changes, providing a solid foundation for continued growth.

Financial Snapshot

Financials

As of September 30, 2024, First Mid Bancshares reported total assets of $7.6 billion, an increase of 0.6% from the previous year-end. The company's loan portfolio stood at $5.6 billion, up slightly from the end of 2023, with healthy growth in commercial and industrial loans offsetting declines in consumer and agricultural real estate loans.

The company's net interest margin for the first nine months of 2024 was 3.32%, a notable improvement from the 2.95% reported in the same period of the prior year. This expansion was driven by a combination of higher earning asset yields and the company's ability to manage its funding costs. Net interest income before the provision for loan losses increased by 24.4% year-over-year, reaching $172.1 million.

First Mid's asset quality remained strong, with nonperforming loans accounting for just 0.33% of total loans as of September 30, 2024, down from 0.36% at the end of 2023. The allowance for credit losses stood at 1.22% of total loans, and the company reported net charge-offs of just 0.07% of average loans during the first nine months of 2024.

For the most recent quarter, First Mid reported revenue of $83,270,000 and net income of $19,168,000. The company generated operating cash flow of $38,274,000 and free cash flow of $37,032,000 during this period.

Liquidity

In terms of capital position, First Mid Bancshares maintained a robust balance sheet, with a Tier 1 capital ratio of 12.70% and a total risk-based capital ratio of 15.24% as of September 30, 2024. These ratios comfortably exceed the well-capitalized thresholds set by banking regulators, providing the company with ample flexibility to support its growth initiatives.

As of the most recent reporting period, First Mid held $164,190,000 in cash and had access to a $15,000,000 revolving credit agreement with The Northern Trust Company, further bolstering its liquidity position.

Diversified Revenue Streams and Expansion Efforts

First Mid Bancshares has successfully diversified its revenue streams beyond traditional net interest income, with a strong focus on fee-based businesses. During the first nine months of 2024, the company's noninterest income totaled $69.9 million, accounting for 26.1% of total revenue.

Key contributors to noninterest income include wealth management revenues, which grew 4.7% year-over-year, and insurance commissions, which increased by 12.0% over the same period. The company's recent acquisition of Mid Rivers Insurance Group in Missouri further bolstered its insurance capabilities and geographic footprint.

In addition to organic growth, First Mid has demonstrated a disciplined approach to strategic acquisitions. The Blackhawk Bancorp acquisition in 2023 has already begun to bear fruit, with the company realizing cost savings and revenue synergies. The integration of Blackhawk's operations has strengthened First Mid's presence in Wisconsin and enhanced its wealth management and insurance offerings.

Looking ahead, the company continues to explore opportunities to expand its geographic reach and diversify its business mix through selective acquisitions and partnerships. Management has indicated that they remain focused on maintaining a strong capital position to support both organic and inorganic growth initiatives.

Loan Portfolio and Investment Securities

First Mid's loan portfolio, which represents the largest category of the company's earning assets, was composed of 43.5% commercial real estate loans, 68.8% loans secured by real estate, 4.2% agricultural loans, 22.9% commercial and industrial loans, and 1.1% consumer loans as of September 30, 2024. The loan balances increased 0.6% compared to December 31, 2023, primarily due to growth in various types of commercial loans and increased seasonal demand for agricultural operating loans, partially offset by decreases in consumer loans and certain real estate loan categories.

It's worth noting that commercial and commercial real estate loans generally involve higher credit risks than residential real estate and consumer loans, as payments on these loans are often dependent on the successful operation and management of the underlying assets. First Mid does not have any subprime mortgages or credit card loans outstanding, which are also generally considered higher credit risk. Geographically, the company's loans are dispersed throughout Illinois, the St. Louis Metro area, central Missouri, Texas, and southern Wisconsin.

In terms of the investment portfolio, as of September 30, 2024, First Mid had $1.28 billion in total securities, with $1.12 billion in available-for-sale securities and $2.30 million in held-to-maturity securities. The investment portfolio decreased $89 million from December 31, 2023, primarily due to sales, paydowns, calls, and maturities of various securities. The available-for-sale portfolio included U.S. Treasury securities, obligations of states and political subdivisions, mortgage-backed securities, and other securities, with a weighted average yield of 2.01%.

Risks and Challenges

While First Mid Bancshares has a history of consistent performance, the company is not without its risks and challenges. As a regional bank, it is exposed to economic conditions in its primary markets, which can impact loan demand, credit quality, and funding costs. The company's significant agricultural loan portfolio, representing over 10% of total loans, also exposes it to fluctuations in commodity prices and weather patterns that could affect the financial health of its farm-based customers.

Additionally, the highly competitive banking industry, with its ongoing technological advancements and evolving customer preferences, requires First Mid to continuously invest in its digital capabilities and ensure it remains relevant to its client base. Regulatory changes and potential shifts in monetary policy also pose risks that the company must navigate effectively.

Conclusion

First Mid Bancshares, Inc. has established itself as a diversified Midwestern banking powerhouse, leveraging its strong community banking roots, wealth management expertise, and strategic acquisitions to drive consistent growth and profitability. With a focus on prudent risk management, disciplined capital allocation, and innovative product offerings, the company appears well-positioned to navigate the challenges of the modern banking landscape and capitalize on opportunities for further expansion and value creation for its shareholders.

The company's strong financial performance, as evidenced by its recent quarterly results and robust liquidity position, demonstrates its ability to execute on its strategic initiatives. First Mid's diversified loan portfolio, with a focus on commercial and real estate lending, coupled with its growing wealth management and insurance services, provides a solid foundation for continued success in the competitive financial services industry.