KBRA Affirms Ratings for First Mid Bancshares, Inc.

KBRA affirms the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, and the short-term debt rating of K2 for Mattoon, Illinois-based First Mid Bancshares, Inc. (NASDAQ: FMBH) ("First Mid" or "the company"). In addition, KBRA affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and the short-term deposit and debt ratings of K2 for its main subsidiary, First Mid Bank & Trust, N.A. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

First Mid’s ratings reflect its strong returns, diversified revenue streams, solid credit history, comfortable liquidity position, favorable core deposit base, and conservative capital management, counterbalanced by a more concentrated operating footprint compared with larger peers. Profitability has remained solid in recent years, supported by a healthy NIM, meaningful fee income, and generally modest credit costs. Noninterest income, which typically represents 25%–30% of total revenue, has grown steadily, particularly in wealth management and insurance services. These segments reflect meaningful scale among community banks, with wealth AUM increasing to $8.3 billion following the Two Rivers Financial Group, Inc. ("Two Rivers") acquisition in 1Q26, and contribute the majority of noninterest income, with other durable sources including deposit service charges and interchange revenue. Looking ahead, earnings are expected to remain appropriate for the rating category (core ROA of ~1.4% during 1H26), bolstered over the near term by the realization of remaining Two Rivers cost saves, with stability over the medium term supported by revenue diversity, relatively neutral interest rate risk positioning, and the lower cost, granular, core deposit base.

Asset quality metrics continue to compare favorably with peers. First Mid has consistently reported exceptionally strong credit performance, highlighted by an NCO ratio averaging just 14 bps over the past 20 years. Credit metrics have normalized from historically benign levels, however, with criticized balances increasing primarily due to agricultural borrowers facing commodity price volatility and elevated input costs. Agricultural lending represents 11% of total loans at 2Q26 and remains well managed, with most downgraded credits remaining on accrual and supported by strong collateral positions. Farmland-secured exposure carries an average LTV of 45%, providing meaningful protection against potential loss severity, while crop insurance, guarantor support, and conservative underwriting further mitigate risk. Investor CRE concentration remains manageable at 279% of total risk-based capital as of 2Q26, improved from 289% at YE25 following the addition of Two Rivers. Management has also become increasingly selective on larger and more transactional CRE opportunities, while borrowers approaching repricing have generally absorbed higher rates well. Given First Mid’s diversified loan portfolio, conservative underwriting, strong collateral protection, and management’s knowledge and expertise, we believe FMBH remains well positioned to manage potential credit pressures.

Liquidity management is adequate, supported by a prudent loan-to-deposit ratio, which management generally targets in the low-to-mid-90% range (92% at 2Q26). Funding remains predominantly core, with limited reliance on wholesale sources despite a modest recent increase in brokered deposits. Management has placed increasing emphasis on whole-relationship banking, including generating deposits and fee relationships alongside lending activity rather than pursuing more transactional credit opportunities. Deposit gathering initiatives across treasury management and public funds should also support funding growth. Additionally, the company maintains substantial contingent liquidity through FHLB, Federal Reserve, federal funds, and holding-company borrowing capacity. Overall, the granular deposit franchise, manageable balance sheet leverage, and substantial contingent liquidity support our favorable view of the funding and liquidity profile.

FMBH’s core capital metrics have increased to above peer averages, with CET1 and TCE ratios of 13.4% and 9.3%, respectively, as of 2Q26. The Two Rivers acquisition had only a modest impact on capitalization, with CET1 and TCE declining to 13.1% and 8.9%, respectively, before quickly rebuilding above pre-transaction and prior-year levels by 2Q26. This resilience reflects strong internal capital generation, measured organic balance sheet growth, a manageable dividend payout generally targeted at 25%–30%, and limited share repurchase activity. Tangible capitalization has also benefited from a reduction in negative AOCI. Looking forward, management continues to view M&A as an attractive use of excess capital as FMBH continues to approach the $10 billion asset threshold. We view the company as well positioned to pursue attractive opportunities while maintaining appropriately conservative transaction structure, capital dilution, and earnback parameters. Moreover, the minimal capital impact from Two Rivers and rapid subsequent rebuild further demonstrate FMBH’s capacity to absorb acquisition-related dilution through earnings retention, consistent with its historical performance.

Rating Sensitivities

A rating upgrade is not anticipated in the medium term. Further strengthening of the franchise through geographic diversification and market share gains, while maintaining strong and durable earnings and robust capitalization could support an upgrade over the longer term. Conversely, a downgrade is not anticipated, but significant deterioration in the funding or liquidity position, or material credit issues resulting in deterioration in earnings or capitalization, could pressure the ratings.

To access ratings and relevant documents, click here.

Methodology