In comparison to the second quarter of last year, the net interest margin decreased 36 basis points, with an average earnings asset increase of 93 basis points versus the average cost of funds increased 129 basis points.

Loan Portfolio

Total loans ended the quarter at $4.81 billion, representing an increase of $52.8 million, or 1.1% compared to the prior quarter. Growth was well diversified both geographically and by sector and came primarily within commercial real estate and commercial and industrial loans. The average yield on new loans and operating line usage was 7.8% in the quarter. The loan pipeline outlook remains muted due to the macro headwinds in the economy.     

Asset Quality

The Company’s strong credit culture continues to be reflected in its asset quality metrics for June 30, 2023. The allowance for credit losses (‘ACL’) increased by $0.5 million to $58.7 million with an ending ACL to total loans ratio of 1.22%. Provision expense was recorded in the amount of $0.5 million and the Company had net recoveries in the period. Also, at the end of the second quarter, the ratio of non-performing loans to total loans was 0.39%, and the ACL to non-performing loans was 315%.   The ratio of nonperforming assets to total assets was 0.34% at quarter end. Nonperforming loans increased by $3.5 million in the period to $18.6 million. Special mention loans declined $6.3 million in the quarter to $40.7 million. Substandard loans declined $1.7 million in the period to $28.3 million.   

Deposits

Total deposits ended the quarter at $5.22 billion, which represented an increase of $188.8 million, or 3.8% from the prior quarter. The increase was primarily in interest bearing demand and time deposits. The Company was aggressive with pricing throughout the first half of the quarter to increase deposits. The success of that effort allowed the Company to use the funds primarily to pay down a net $145.0 million in Federal Home Loan Bank borrowings and to fund loan growth.   The Company’s average rate on cost of funds increased to 1.59% compared to 1.38% in the prior quarter, which reflected the lowest increase since the second quarter of 2022.               

Noninterest Income/PGIB Acquisition

On June 16, 2023, our subsidiary First Mid Insurance Group closed on the acquisition of PGIB Insurance based in Macomb, Illinois. PGIB has nearly a 100-year history serving northern and western Illinois with a diversified product offering including commercial property & casualty, personal property & casualty, and group medical plans and individual health insurance. Annual revenues are approximately $2.5 million, which is expected to grow with the opportunities from bank referrals and access to expanded markets.

Noninterest income represented 31.5% of our total net revenues in the quarter and 32.9% year-to-date.

Noninterest income for the second quarter of 2023 was $19.5 million compared to $22.5 million in the first quarter of 2023.   The decrease compared to the prior quarter was primarily due to the seasonality of the insurance business, which was down by $2.7 million, and the previously disclosed bank owned life insurance claim of $0.7 million that occurred in the first quarter of 2023.

In comparison to the second quarter of 2022, noninterest income increased $0.9 million, or 5.0%. All categories increased, except for wealth management and net securities gains.              

Noninterest Expenses  

Noninterest expense for the second quarter of 2023 totaled $40.0 million compared to $41.6 million in the prior quarter. The decrease was primarily driven by the cost savings initiatives the Company implemented at the end of the first quarter and the variable cost tied to the seasonality of wealth management and insurance revenues. This was partially offset by an increase to the FDIC insurance expense accrual. The current quarter included $0.7 million in nonrecurring acquisition related expenses.

In comparison to the second quarter of 2022, noninterest expenses decreased $1.5 million. The decrease was primarily driven by lower salaries and benefits costs tied to the cost savings initiatives at the end of the first quarter.

The Company’s efficiency ratio, as adjusted in the non-GAAP reconciliation table herein, for the second quarter 2023 was 60.4% compared to 59.0% in the prior quarter and 58.5% for the same period last year.

Capital Levels and Dividend

The Company’s capital levels remained strong and comfortably above the “well capitalized” levels. During the second quarter, significant loan growth increased risk-weighted assets resulting in a modest decrease in certain of the ratios. Capital levels ended the period as follows:

The Company’s Board of Directors approved its next quarterly dividend of $0.23 payable on September 1, 2023 for shareholders of record on August 14, 2023.

About First Mid: First Mid Bancshares, Inc. (“First Mid”) is the parent company of First Mid Bank & Trust, N.A., First Mid Insurance Group, Inc., and First Mid Wealth Management Co. First Mid is a $6.7 billion community-focused organization that provides a full-suite of financial services including banking, wealth management, brokerage, Ag services, and insurance through a sizeable network of locations throughout Illinois, Missouri, and Texas, and a loan production office in the greater Indianapolis area. Together, our First Mid team takes great pride in providing solutions and services to the customers and communities and has done so over the last 157 years. More information about the Company is available on our website at www.firstmid.com.

Non-GAAP Measures: In addition to reports presented in accordance with generally accepted accounting principles (“GAAP”), this release contains certain non-GAAP financial measures. The Company believes that such non-GAAP financial measures provide investors with information useful in understanding the Company’s financial performance. Readers of this release, however, are urged to review these non-GAAP financial measures in conjunction with the GAAP results as reported. These non-GAAP financial measures are detailed as supplemental tables and include “Adjusted Net Income,” “Adjusted Diluted EPS,” “Efficiency Ratio,” “Net Interest Margin, tax equivalent,” and “Tangible Book Value per Common Share”. While the Company believes these non-GAAP financial measures provide investors with a broader understanding of the capital adequacy, funding profile and financial trends of the Company, this information should be considered as supplemental in nature and not as a substitute to the related financial information prepared in accordance with GAAP. These non-GAAP financial measures may also differ from the similar measures presented by other companies.

Forward Looking Statements
This document may contain certain forward-looking statements about First Mid and Blackhawk, such as discussions of First Mid’s and Blackhawk’s pricing and fee trends, credit quality and outlook, liquidity, new business results, expansion plans, anticipated expenses and planned schedules. First Mid intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of First Mid and Blackhawk, are identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or similar expressions. Actual results could differ materially from the results indicated by these statements because the realization of those results is subject to many risks and uncertainties, including, among other things, the possibility that any of the anticipated benefits of the proposed transactions between First Mid and Blackhawk will not be realized or will not be realized within the expected time period; the risk that integration of the operations of Blackhawk 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 to completion of the proposed transactions, including failure to obtain the 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 Blackhawk; 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 Blackhawk’s loan or investment portfolios and the valuation of those investment portfolios; demand for loan products; deposit flows; competition, demand for financial services in the market areas of First Mid and Blackhawk; accounting principles, policies and guidelines; and the impact of the global COVID-19 pandemic on First Mid’s or Blackhawk’s businesses, the ability to complete the proposed transactions or any of the other foregoing risks. Additional information concerning First Mid, including additional factors and risks that could materially affect First Mid’s financial results, are included in First Mid’s filings with the SEC, including its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. Forward-looking statements speak only as of the date they are made. Except as required under the federal securities laws or the rules and regulations of the SEC, we do not undertake any obligation to update or review any forward-looking information, whether as a result of new information, future events or otherwise.

Important Information about the Merger and Additional Information
First Mid filed a registration statement on Form S-4 with the SEC on May 30, 2023, which, as amended, was declared effective on June 23, 2023, in connection with the proposed transaction. The registration statement includes a proxy statement of Blackhawk that also constitutes a prospectus of First Mid. The definitive proxy statement/prospectus was first mailed to the shareholders of Blackhawk on or about July 5, 2023, seeking their approval of the proposed transaction. Investors in Blackhawk are urged to read the proxy statement/prospectus, which will contain important information, including detailed risk factors. The proxy statement/prospectus and other documents which were filed by First Mid with the SEC will be available free of charge at the SEC’s website, www.sec.gov, or by directing a request when such a filing is made to First Mid Bancshares, P.O. Box 499, Mattoon, IL 61938, Attention: Investor Relations; or to Blackhawk upon written request to Blackhawk Bancorp, Inc., 400 Broad St., Beloit, WI 53511-6223, Attention: Todd J. James, President & CEO.

Participants in the Solicitation
First Mid and Blackhawk, and certain of their respective directors, executive officers and other members of management and employees, are participants in the solicitation of proxies in connection with the proposed transactions. Information about the directors and executive officers of First Mid is set forth in the proxy statement for its 2023 annual meeting of stockholders, which was filed with the SEC on March 15, 2023. These documents can be obtained free of charge from the sources provided above. Investors may obtain additional information regarding the interests of such participants in the proposed transactions by reading the proxy statement/prospectus for such proposed transactions when it becomes available.

No Offer or Solicitation
This communication shall not constitute an offer to sell or the solicitation of an offer to buy securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.

Investor Contact:
Aaron Holt
VP, Shareholder Relations
217-258-0463
aholt@firstmid.com

Matt Smith
Chief Financial Officer
217-258-1528
msmith@firstmid.com

– Tables Follow –