Kroll Bond Rating Agency (KBRA) assigns a senior unsecured debt rating of BBB+, a subordinated debt rating of BBB, and a short-term debt rating of K2 for Mattoon, Illinois-based First Mid Bancshares, Inc. (NASDAQ: FMBH) ("First Mid" or "the company"). In addition, KBRA assigns deposit and senior unsecured debt ratings of A-, a subordinated debt rating of BBB+, and short-term deposit and debt ratings of K2 for its subsidiary, First Mid Bank & Trust, N.A. The Outlook for all long-term ratings is Stable.
First Mid’s ratings are supported by the company’s diverse revenue streams – with fee income generally accounting for 30%-35% of operating revenue. Moreover, fee income is primarily derived from more stable/durable business lines, including growing wealth management and insurance divisions (60% of non-interest income combined). KBRA also recognizes FMBH’s favorable core deposit franchise – with respectable deposit market share within current operating markets. This has helped facilitate below average deposit costs, amounting to 38 bps for 2Q20. The lower deposit costs and growing non-interest income levels have resulted in above peer returns on a core and risk-adjusted basis (core ROA and return on RWA of near 1.40% and 1.90%, respectively, for FY19). KBRA also positively views the management team’s conservatism with credit and capital management. Despite higher NPA levels in recent years, loss content has been nominal. Moreover, FMBH performed admirably during the global financial crisis (annual NCO ratio averaged 15 bps since 2000). Additionally, all capital ratios have trended above average in recent years.
KBRA is mindful of the concentration in agricultural lending given the challenging conditions for farmers in recent years. With that said, FMBH’s talent/expertise within the lending segment, low LTVs for farmland, and minimal losses ($1.2 million since 1995) partially mitigate those concerns. First Mid is exposed to geographic risks given the concentrated footprint, especially considering the concerns within Illinois’ economy, though management is experienced and knowledgeable of local markets.
KBRA continues to monitor the potential direct and indirect effects of the coronavirus on the banking sector, among others. Please refer to our publication U.S. Bank 2Q 2020 Ratings Compendium for our latest thoughts.
The ratings are based on KBRA’s Bank & Bank Holding Company Global Rating Methodology published on October 16, 2019.
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.
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