

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended ~~June 30, 2019~~March 31, 2020
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________

Commission file number 0-13368

FIRST MID BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)

Delaware	37-1103704
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)

1421 Charleston Avenue,
Mattoon, Illinois	61938
(Address of principal executive offices)	(Zip code)

(217) 234-7454
(Registrant's telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	FMBH	NASDAQ Global Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X ] No [ ]

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer [ ]	Accelerated filer [X]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)	Smaller reporting company [ ]
	Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] Yes [X] No

As of ~~August 5, 2019~~May 4, 2020, ~~16,696,292~~16,702,484 common shares, $4.00 par value, were outstanding.

PART I


ITEM 1. FINANCIAL STATEMENTS
First Mid Bancshares, Inc.
Condensed Consolidated Balance Sheets	(Unaudited)						(Unaudited)
(In thousands, except share data)	June 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Assets
Cash and due from banks:
Non-interest bearing	$	101,027		$	63,593		$	80,798		$	76,498
Interest bearing	66,470			77,142			100,302			7,656
Federal funds sold	919			665			927			926
Cash and cash equivalents	168,416			141,400			182,027			85,080
Certificates of deposit investments	6,585			7,569
Certificates of deposit							4,380			4,625
Investment securities:
Available-for-sale, at fair value	757,690			692,274			617,801			686,048
Held-to-maturity, at amortized cost (estimated fair value of $69,441 and $67,909 at June 30, 2019 and December 31, 2018, respectively)	69,488			69,436
Held-to-maturity, at amortized cost (estimated fair value of $24,806 and $69,572 at March 31, 2020 and December 31, 2019, respectively)							24,563			69,542
Loans held for sale	1,717			1,508			1,251			1,820
Loans	2,544,826			2,643,011			2,743,047			2,693,527
Less allowance for loan losses	(26,359		)	(26,189		)
Less allowance for credit losses							(32,876		)	(26,911		)
Net loans	2,518,467			2,616,822			2,710,171			2,666,616
Interest receivable	15,650			16,881			15,422			15,577
Other real estate owned	3,569			2,534			2,784			3,644
Premises and equipment, net	59,898			59,117			59,359			59,491
Goodwill, net	104,975			105,277			104,992			104,992
Intangible assets, net	30,787			33,820			27,207			28,265
Bank owned life insurance	66,347			65,484			67,656			67,225
Right of use lease assets	12,805			—			16,542			17,006
Other assets	26,447			27,612			30,676			29,495
Total assets	$	3,842,841		$	3,839,734		$	3,864,831		$	3,839,426
Liabilities and Stockholders’ Equity
Deposits:
Non-interest bearing	$	603,823		$	575,784		$	642,384		$	633,331
Interest bearing	2,408,667			2,412,902			2,266,243			2,284,035
Total deposits	3,012,490			2,988,686			2,908,627			2,917,366
Securities sold under agreements to repurchase	152,264			192,330			231,649			208,109
Interest payable	2,416			1,758			2,029			2,261
FHLB borrowings	95,826			119,745			119,921			113,895
Other borrowings	—			7,724			5,000			5,000
Junior subordinated debentures	29,084			29,000			18,900			18,858
Lease liabilities	12,815			—			16,568			17,007
Other liabilities	28,988			24,627			29,086			30,321
Total liabilities	3,333,883			3,363,870			3,331,780			3,312,817
Stockholders’ Equity:
Common stock, $4 par value; authorized 30,000,000 shares; issued 17,268,693 and 17,219,012 shares in 2019 and 2018, respectively	71,075			70,876
Common stock, $4 par value; authorized 30,000,000 shares; issued 17,316,886 and 17,287,882 shares in 2020 and 2019, respectively							71,268			71,152
Additional paid-in capital	295,415			293,937			296,853			295,925
Retained earnings	149,688			131,392			175,949			166,667
Deferred compensation	2,323			2,761			2,022			2,760
Accumulated other comprehensive income (loss)	7,216			(6,473		)
Less treasury stock at cost, 574,377 shares in 2019 and 2018	(16,759		)	(16,629		)
Accumulated other comprehensive income							5,209			8,360
Less treasury stock at cost, 614,403 shares in 2020 and 2019							(18,250		)	(18,255		)
Total stockholders’ equity	508,958			475,864			533,051			526,609
Total liabilities and stockholders’ equity	$	3,842,841		$	3,839,734		$	3,864,831		$	3,839,426

See accompanying notes to unaudited condensed consolidated financial statements.


First Mid Bancshares, Inc.
Condensed Consolidated Statements of Income (unaudited)	Condensed Consolidated Statements of Income (unaudited)
(In thousands, except per share data)	Three months ended June 30,				Six months ended June 30,				Three months ended March 31,
	2019		2018		2019		2018		2020			2019
Interest income:
Interest and fees on loans	$	31,539	$	25,362	$	63,643	$	46,369	$	30,027		$	32,104
Interest on investment securities	5,436		4,679		10,645		8,760		4,589			5,209
Interest on certificates of deposit investments	37		12		75		21		31			38
Interest on federal funds sold	4		1		7		2		2			3
Interest on deposits with other financial institutions	555		77		1,252		137		92			697
Total interest income	37,571		30,131		75,622		55,289		34,741			38,051
Interest expense:
Interest on deposits	4,940		1,670		9,318		2,932		3,861			4,378
Interest on securities sold under agreements to repurchase	215		65		475		124		194			260
Interest on FHLB borrowings	696		475		1,419		750		580			723
Interest on other borrowings	1		118		1		226		15			—
Interest on subordinated debentures	406		349		844		608		218			438
Total interest expense	6,258		2,677		12,057		4,640		4,868			5,799
Net interest income	31,313		27,454		63,565		50,649		29,873			32,252
Provision for loan losses	91		1,877		1,038		2,932		5,481			947
Net interest income after provision for loan losses	31,222		25,577		62,527		47,717		24,392			31,305
Other income:
Wealth management revenues	3,587		1,599		7,232		3,341		3,626			3,645
Insurance commissions	3,760		838		9,315		2,325		6,621			5,555
Service charges	1,959		1,803		3,761		3,438		1,778			1,802
Securities gains, net	218		881		272		901		531			54
Mortgage banking revenue, net	346		410		585		571		308			239
ATM / debit card revenue	2,202		1,860		4,218		3,464		1,987			2,016
Bank owned life insurance	447		315		877		591		431			430
Other	1,069		655		1,967		1,217		1,228			898
Total other income	13,588		8,361		28,227		15,848		16,510			14,639
Other expense:
Salaries and employee benefits	15,565		11,057		32,139		21,251		16,500			16,574
Net occupancy and equipment expense	4,543		3,505		8,998		6,778		4,242			4,455
Net other real estate owned expense	188		7		241		83		(46		)	53
FDIC insurance	197		285		476		566		93			279
Amortization of intangible assets	1,823		716		3,179		1,221		1,295			1,356
Stationery and supplies	264		186		551		397		268			287
Legal and professional	1,304		1,717		2,498		2,854		1,398			1,194
ATM / debit card									605			803
Marketing and donations	481		431		935		785		481			454
Other	5,822		2,892		9,480		5,235		2,895			2,855
Total other expense	30,187		20,796		58,497		39,170		27,731			28,310
Income before income taxes	14,623		13,142		32,257		24,395		13,171			17,634
Income taxes	3,642		3,105		7,960		5,968		3,172			4,318
Net income	$	10,981	$	10,037	$	24,297	$	18,427	$	9,999		$	13,316
Per share data:
Basic net income per common share available to common stockholders	$	0.66	$	0.72	$	1.46	$	1.38
Diluted net income per common share available to common stockholders	0.66		0.72		1.45		1.38
Cash dividends declared per common share	0.36		0.34		0.36		0.34
Basic net income per common share									$	0.60		$	0.80
Diluted net income per common share									0.60			0.80

See accompanying notes to unaudited condensed consolidated financial statements.


First Mid Bancshares, Inc.
Condensed Consolidated Statements of Comprehensive Income (unaudited)	Condensed Consolidated Statements of Comprehensive Income (unaudited)
(in thousands)	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2019			2018			2019			2018			2020			2019
Net income	$	10,981		$	10,037		$	24,297		$	18,427		$	9,999		$	13,316
Other Comprehensive Income (Loss)
Unrealized gains (losses) on available-for-sale securities, net of taxes of $(2,531) and $64 for three months ended June 30, 2019 and 2018, respectively and $(5,653) and $2,605 for six months ended June 30, 2019 and 2018, respectively.	6,195			(150		)	13,841			(6,370		)
Amortized holding losses on held-to-maturity securities transferred from available-for-sale, net of taxes of $(8) for both three months ended June 30, 2019 and 2018 and $(17) for both six months ended June 30, 2019 and 2018.	21			21			41			40
Less: reclassification adjustment for realized gains included in net income, net of taxes of $63 and $255 for three months ended June 30, 2019 and 2018, respectively and $79 and $261 for six months ended June 30, 2019 and 2018, respectively.	(155		)	(626		)	(193		)	(640		)
Unrealized gains (losses) on available-for-sale securities, net of taxes of $1,139 and $(3,123) for three months ended March 31, 2020 and 2019, respectively.													(2,789		)	7,645
Amortized holding losses on held-to-maturity securities transferred from available-for-sale, net of taxes of $(5) and$(8) for three months ended March 31, 2020 and 2019, respectively.													15			21
Less: reclassification adjustment for realized gains included in net income, net of taxes of $154 and $16 for three months ended March 31, 2020 and 2019, respectively.													(377		)	(38		)
Other comprehensive income (loss), net of taxes	6,061			(755		)	13,689			(6,970		)	(3,151		)	7,628
Comprehensive income	$	17,042		$	9,282		$	37,986		$	11,457		$	6,848		$	20,944

See accompanying notes to unaudited condensed consolidated financial statements.



First Mid Bancshares, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
For the three months ended March 31, 2020 and 2019
	Common Stock		Additional Paid-In-Capital						Deferred Compensation			Accumulated Other Comprehensive Income (Loss)
(in thousands)						Retained Earnings									Treasury Stock
																		Total
December 31, 2019	$	71,152	$	295,925		$	166,667		$	2,760		$	8,360		$	(18,255	)	$	526,609
Cumulative impact of ASU2016-13	—		—			(717		)	—			—			—			(717		)
January 1, 2020	71,152		295,925			165,950			2,760			8,360			(18,255		)	525,892
Net income	—		—			9,999			—			—			—			9,999
Other comprehensive loss, net of tax	—		—			—			—			(3,151		)	—			(3,151		)
Issuance of 25,200 restricted shares pursuant to the 2017 Stock Incentive Plan	101		767			—			—			—			—			868
Issuance of 3,804 common shares pursuant to the Employee Stock Purchase Plan	15		71			—			—			—						86
Deferred Compensation	—		—			—			(5		)	—			5			—
Tax benefit related to deferred compensation distributions	—		22			—			—			—			—			22
Grant of restricted units pursuant to 2017 Stock Incentive Plan	—		584			—			—			—			—			584
Release of restricted units pursuant to 2017 Stock Incentive Plan	—		(516		)	—			—			—			—			(516		)
Vested restricted shares/units compensation expense	—		—			—			(733		)	—			—			(733		)
March 31, 2020	$	71,268	$	296,853		$	175,949		$	2,022		$	5,209		$	(18,250	)	$	533,051

December 31, 2018	$	70,876	$	293,937		$	131,392		$	2,761		$	(6,473	)	$	(16,629	)	$	475,864
Net income	—		—			13,316			—			—			—			13,316
Other comprehensive income, net of tax	—		—			—			—			7,628			—			7,628
Issuance of 5,761 common shares pursuant to Deferred Compensation Plan	23		171			—			—			—			—			194
Issuance of 25,950 restricted shares pursuant to the 2017 Stock Incentive Plan	104		760			—			—			—			—			864
Issuance of 782 common shares pursuant to the Employee Stock Purchase Plan	3		21			—			—			—			—			24
Deferred Compensation	—		—			—			(1		)	—			1			—
Grant of restricted units pursuant to 2017 Stock Incentive Plan	—		(52		)	—			(814		)	—			—			(866		)
Vested restricted shares/units compensation expense	—		—			—			128			—			—			128
March 31, 2019	$	71,006	$	294,837		$	144,708		$	2,074		$	1,155		$	(16,628	)	$	497,152

First Mid Bancshares, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
For the three months ended June 30, 2019 and 2018
Common Stock Additional Paid-In-Capital Deferred Compensation Accumulated Other Comprehensive Income (Loss)
(in thousands) Retained Earnings Treasury Stock
Total
March 31, 2019 $ 71,006
$ 294,837
$ 144,708
$ 2,074
$ 1,155
$ (16,628 ) $ 497,152
Net income —
—
10,981
—
—
—
10,981
Other comprehensive income, net of tax —
—
—
—
6,061
—
6,061
Cash dividends on common stock (.36/share) —
—
(6,001 ) —
—
—
(6,001 )
Issuance of 13,475 common shares pursuant to Dividend Reinvestment Plan 54
419
��
—
—
—
473
Issuance of 7,398 common shares pursuant to Deferred Compensation Plan 7
47
—
—
—
—
54
Issuance of 2,858 common shares pursuant to the Employee Stock Purchase Plan 8
56
—
—
—
—
64
Deferred Compensation —
—
—
131
—
(131 ) —
Tax benefit related to deferred compensation distributions —
56
—
—
—
—
56
Vested restricted shares/units compensation expense —
—
—
118
—
—
118
June 30, 2019 $ 71,075
$ 295,415
$ 149,688
$ 2,323
$ 7,216
$ (16,759 ) $ 508,958

March 31, 2018 $ 54,993
$ 165,012
$ 113,073
$ 2,195
$ (8,519 ) $ (16,167 ) $ 310,587
Net income —
—
10,037
—
—
—
10,037
Other comprehensive loss, net of tax —
—
—
—
(755 ) —
(755 )
Cash dividends on common stock (.34/share) —
—
(4,389 ) —
—
—
(4,389 )
Issuance of 14,626 common shares pursuant to Dividend Reinvestment Plan 59
474
—
—
—
—
533
Issuance of 5,342 common shares pursuant to Deferred Compensation Plan 6
48
—
—
—
—
54
Issuance of 2,500 common shares pursuant to the exercise of stock options 10
48
—
—
—
—
58
Issuance of 1,643,900 common shares pursuant to acquisition of First Banctrust Corporation, net proceeds 6,576
54,710
—
—
—
—
61,286
Issuance of 947,368 common shares pursuant to capital raise 3,789
30,197
—
—
—
—
33,986
Purchase of 2,588 shares of treasury stock —
—
—
—
—
(95 ) (95 )
Deferred Compensation —
—
—
128
—
(128 ) —
Tax benefit related to deferred compensation distributions —
(56 ) —
—
—
—
(56 )
Vested restricted shares/units compensation expense —
—
—
80
—
—
80
June 30, 2018 $ 65,433
$ 250,433
$ 118,721
$ 2,403
$ (9,274 ) $ (16,390 ) $ 411,326

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

First Mid Bancshares, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
For the six months ended June 30, 2019 and 2018
Common Stock Additional Paid-In-Capital Deferred Compensation Accumulated Other Comprehensive Income (Loss)
(in thousands) Retained Earnings Treasury Stock
Total
December 31, 2018 $ 70,876
$ 293,937
$ 131,392
$ 2,761
$ (6,473 ) $ (16,629 ) $ 475,864
Net income —
—
24,297
—
—
—
24,297
Other comprehensive income, net of tax —
—
—
—
13,689
—
13,689
Cash dividends on common stock (.36/share) —
—
(6,001 ) —
—
—
(6,001 )
Issuance of 13,475 common shares pursuant to Dividend Reinvestment Plan 54
419
—
—
—
—
473
Issuance of 7,398 common shares pursuant to Deferred Compensation Plan 30
218
—
—
—
—
248
Issuance of 25,950 restricted shares pursuant to the 2017 Stock Incentive Plan 104
760
—
—
—
—
864
Issuance of 2,858 common shares pursuant to the Employee Stock Purchase Plan 11
77
—
—
—
—
88
Deferred Compensation —
—
—
130
—
(130 ) —
Tax benefit related to deferred compensation distributions —
56
—
—
—
—
56
Grant of restricted units pursuant to 2017 Stock Incentive Plan —
(52 ) —
(814 ) —
—
(866 )
Vested restricted shares/units compensation expense —
—
—
246
—
—
246
June 30, 2019 $ 71,075
$ 295,415
$ 149,688
$ 2,323
$ 7,216
$ (16,759 ) $ 508,958

December 31, 2017 $ 54,925
$ 163,603
$ 104,683
$ 3,540
$ (2,304 ) $ (16,483 ) $ 307,964
Net income —
—
18,427
—
—
—
18,427
Other comprehensive loss, net of tax —
—
—
—
(6,970 ) —
(6,970 )
Cash dividends on common stock (.34/share) —
—
(4,389 ) —
—
—
(4,389 )
Issuance of 14,626 common shares pursuant to Dividend Reinvestment Plan 59
474
—
—
—
—
533
Issuance of 5,342 common shares pursuant to Deferred Compensation Plan 21
183
—
—
—
—
204
Issuance of 13,250 restricted shares pursuant to the 2017 Stock Incentive Plan 53
463
—
—
—
—
516
Issuance of 2,500 common shares pursuant to the exercise of stock options 10
48
—
—
—
—
58
Issuance of 1,643,900 common shares pursuant to acquisition of First Banctrust Corporation, net proceeds 6,576
54,710
—
—
—
—
61,286
Issuance of 947,368 common shares pursuant to capital raise 3,789
30,197
—
—
—
—
33,986
Purchase of 2,588 shares of treasury stock —
—
—
—
—
(95 ) (95 )
Deferred Compensation —
—
—
(188 ) —
188
—
Tax benefit related to deferred compensation distributions —
161
—
—
—
—
161
Grant of restricted units pursuant to 2017 Stock Incentive Plan —
594
—
(1,109 ) —
—
(515 )
Vested restricted shares/units compensation expense —
—
—
160
—
—
160
June 30, 2018 $ 65,433
$ 250,433
$ 118,721
$ 2,403
$ (9,274 ) $ (16,390 ) $ 411,326

See accompanying notes to unaudited condensed consolidated financial statements.


First Mid Bancshares, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)	Six months ended June 30,						Three months ended March 31,
(In thousands)	2019			2018			2020			2019
Cash flows from operating activities:
Net income	$	24,297		$	18,427		$	9,999		$	13,316
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	1,038			2,932			5,481			947
Depreciation, amortization and accretion, net	5,435			3,478			2,721			2,430
Change in cash surrender value of bank owned life insurance	(877		)	(591		)	(431		)	(430		)
Stock-based compensation expense	264			160			204			128
Operating lease payments	(1,340		)	—			(677		)	(664		)
Gains on investment securities, net	(272		)	(901		)	(531		)	(54		)
Loss on sales of repossessed assets, net	63			11
Loss on write down of premises and equipment	—			1
Gain on sales of repossessed assets, net							(162		)	(5		)
Gain on sale of premises and equipment							(26		)	—
Gains on sale of loans held for sale, net	(508		)	(462		)	(353		)	(180		)
Decrease in accrued interest receivable	1,231			549			155			808
Increase in accrued interest payable	823			216
(Decrease) increase in accrued interest payable							(164		)	493
Origination of loans held for sale	(28,750		)	(27,596		)	(20,039		)	(12,098		)
Proceeds from sale of loans held for sale	29,049			26,629			20,961			12,553
Decrease in other assets	1,658			1,435
Decrease in other liabilities	(141		)	(6,242		)
(Increase) decrease in other assets							(937		)	507
Increase (decrease) in other liabilities							413			(333		)
Net cash provided by operating activities	31,970			18,046			16,614			17,418
Cash flows from investing activities:
Proceeds from maturities of certificates of deposit investments	984			—			1,225			249
Purchases of certificates of deposit investments							(980		)	—
Proceeds from sales of securities available-for-sale	20,052			13,152			—			12,631
Proceeds from maturities of securities available-for-sale	42,222			25,950			108,666			23,020
Proceeds from maturities of securities held-to-maturity							45,000			—
Purchases of securities available-for-sale	(108,684		)	(28,260		)	(44,830		)	(28,431		)
Net decrease (increase) in loans	95,687			(73,973		)
Net (increase) decrease in loans							(50,059		)	45,188
Purchases of premises and equipment	(2,543		)	(753		)	(786		)	(987		)
Proceeds from sales of other real property owned	508			1,040			1,211			354
Net cash provided by acquisition	—			10,323
Net cash provided by (used in) investing activities	48,226			(52,521		)
Net cash provided by investing activities							59,447			52,024
Cash flows from financing activities:
Net increase in deposits	23,804			10,601
Decrease in repurchase agreements	(40,066		)	(13,726		)
Net (decrease) increase in deposits							(8,739		)	57,527
Decrease in federal funds purchased							(5,000		)	—
Increase (decrease) in repurchase agreements							23,540			(34,570		)
Proceeds from FHLB advances	—			15,000			15,000			—
Repayment of FHLB advances	(24,000		)	(10,000		)	(9,000		)	—
Proceeds from long-term debt							5,000			—
Repayment of long-term debt	(7,724		)	(938		)	—			(1,467		)
Proceeds from issuance of common stock	334			36,263			85			216
Direct expenses related to capital transactions	—			(2,078		)
Purchase of treasury stock	—			(95		)
Dividends paid on common stock	(5,528		)	(3,856		)
Net cash (used in) provided by financing activities	(53,180		)	31,171
Increase (decrease) in cash and cash equivalents	27,016			(3,304		)
Net cash provided by financing activities							20,886			21,706
Increase in cash and cash equivalents							96,947			91,148
Cash and cash equivalents at beginning of period	141,400			88,879			85,080			141,400
Cash and cash equivalents at end of period	$	168,416		$	85,575		$	182,027		$	232,548


First Mid Bancshares, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)	Six months ended June 30,				Three months ended March 31,
(In thousands)	2019		2018		2020		2019
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	11,399	$	4,097	$	5,100	$	5,391
Income taxes	6,987		5,020		—		2,035
Supplemental disclosures of noncash investing and financing activities
Loans transferred to other real estate owned	1,630		214
Loans transferred to other real estate					184		1,630
Initial recognition of right-of-use assets	14,116		—		—		14,116
Initial recognition of lease liabilities	14,116		—		—		14,116
Dividends reinvested in common stock	473		533
Net tax benefit related to option and deferred compensation plans	56		161		22		—
Supplemental disclosure of purchase of capital stock of First Bank
Fair value of assets acquired	—		501,285
Consideration paid:
Cash paid	—		10,275
Common stock issued	—		61,350
Total consideration paid	—		71,625
Fair value of liabilities assumed	$	—	$	429,660

See accompanying notes to unaudited condensed consolidated financial statements.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1 -- Basis of Accounting and Consolidation

The unaudited condensed consolidated financial statements include the accounts of First Mid Bancshares, Inc. (“Company”) formerly known as First Mid-Illinois Bancshares, Inc., and its wholly-owned subsidiaries: First Mid Bank & Trust, N.A. (“First Mid Bank”), First Mid Wealth Management Company, Mid-Illinois Data Services, Inc. (“MIDS”) ~~and~~, First Mid Insurance Group, Inc. (“First Mid Insurance”). and First Mid Captive, Inc. All significant intercompany balances and transactions have been eliminated in consolidation. The financial information reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~, and all such adjustments are of a normal recurring nature. Certain amounts in the prior year’s consolidated financial statements may have been reclassified to conform to the ~~June 30, 2019~~March 31, 2020 presentation and there was no impact on net income or stockholders’ equity. The results of the interim period ended ~~June 30, 2019~~March 31, 2020 are not necessarily indicative of the results expected for the year ending December 31, ~~2019~~2020. The Company operates as a one-segment entity for financial reporting purposes.

The ~~2018~~2019 year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

The unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and do not include all of the information required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements and related footnote disclosures although the Company believes that the disclosures made are adequate to make the information not misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s ~~2018~~2019 Annual Report on Form 10-K.

COVID-19

The COVID-19 outbreak is an unprecedented event that provides significant economic uncertainty for a broad spectrum of industries. The Company is focused on supporting its customers, communities and employees during this unique operating environment. Throughout this document, we describe the impact COVID-19 is having, actions taken as a result of COVID-19, and certain risks to the Company that COVID-19 creates or exacerbates, as well as management's outlook on the current COVID-19 situation.

Website

The Company maintains a website at www.firstmid.com. All periodic and current reports of the Company and amendments to these reports filed with the Securities and Exchange Commission (“SEC”) can be accessed, free of charge, through this website as soon as reasonably practicable after these materials are filed with the SEC.

~~Capital Raise~~

General Litigation

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Company.

Loan Purchase

On ~~June 13, 2018, the Company and~~April 21, 2020, First Mid Bank ~~entered into~~completed an ~~underwriting agreement (the “Underwriting Agreement”) with FIG Partners, LLC, as the representative~~acquisition of the several underwriters named therein (the “Underwriters”), pursuant to which the Company agreed to issue and sell to the Underwriters and the Underwriters agreed to purchase, subject to and upon the terms and conditions of the Underwriting Agreement, an aggregate of 823,799 shares of the Company’s common stock, par value $4.00 per share, at a public offering price of $38.00 per share, in an underwritten public offering (the “Offering”). The Company granted the Underwriters an option for a period of 30 days after the date of the Underwriting Agreement to purchase up to an additional 123,569 shares of common stock at the public offering price, less discounts and commissions. The Underwriters exercised their option in full on June 13, 2018, resulting in 947,368 shares of common stock being offeredloans in the ~~Offering. The Offering closed on June 15, 2018. The net proceeds~~St. Louis metro market totaling $183 million. There were no loans determined to ~~the Company, after deducting underwriting discounts and commissions and offering expenses, were approximately $34.0 million.~~be purchased with deteriorated credit.

~~First BancTrust Corporation~~

On December 11, 2017, the Company and Project Hawks Merger Sub LLC (formerly known as Project Hawks Merger Sub Corp.), a newly formed Delaware limited liability company and wholly-owned subsidiary of the Company (“Hawks Merger Sub”), entered into an Agreement and Plan of Merger (as amended as of January 18, 2018, the “First Bank Merger Agreement") with First BancTrust Corporation, a Delaware corporation (“First Bank”), pursuant to which, among other things, the Company agreed to acquire 100% of the issued and outstanding shares of First Bank pursuant to a business combination whereby First Bank merged with and into Hawks Merger Sub, with Hawks Merger Sub as the surviving entity and a wholly-owned subsidiary of the Company (the “First Bank Merger”).

Subject to the terms and conditions of the First Bank Merger Agreement, at the effective time of the First Bank Merger, each share of common stock, par value $0.01 per share, of First Bank issued and outstanding immediately prior to the effective time of the First Bank Merger (other than shares held in treasury by First Bank and shares held by stockholders who have properly made and not withdrawn a demand for appraisal rights under Delaware law) converted into and become the right to receive, (a) $5.00 in cash and (b) 0.800 shares of common stock, par value $4.00 per share, of the Company and cash in lieu of fractional shares, less any applicable taxes required to be withheld and subject to certain adjustments, all as set forth in the First Bank Merger Agreement.

The First Bank Merger closed on May 1, 2018 and the Company issued an aggregate total of 1,643,900 shares of common stock paying approximately $10,275,000, including cash in lieu of fractional shares. The accounting for the First Bank Merger is presented in Note 8 to the consolidated financial statements. First Bank’s wholly-owned bank subsidiary, First Bank & Trust, merged with and into the Company’s wholly owned bank subsidiary, First Mid Bank, on August 10, 2018. At the time of the bank merger, First Bank & Trust’s banking offices became branches of First Mid Bank.

~~SCB Bancorp, Inc.~~

On June 12, 2018, The Company and Project Almond Merger Sub LLC, a newly formed Illinois limited liability company and wholly-owned subsidiary of the Company (“Almond Merger Sub”), entered into an Agreement andStock Repurchase Plan of Merger (the “SCB Merger Agreement”) with SCB Bancorp, Inc., an Illinois corporation (“SCB”), pursuant to which, among other things, the Company agreed to acquire 100% of the issued and outstanding shares of SCB pursuant to a business combination whereby SCB will merge with and into Almond Merger Sub, whereupon the separate corporate existence of SCB will cease and Merger Sub will continue as the surviving company and a wholly-owned subsidiary of the Company (the “SCB Merger”).

Subject to the terms and conditions of the SCB Merger Agreement, at the effective time of the SCB Merger, each share of common stock, par value $7.50 per share, of SCB issued and outstanding immediately prior to the effective time of the SCB Merger were converted into and became the right to receive, at the election of each stockholder, either $307.93 in cash or 8.0228 shares of common stock, par value $4.00 per share, of the Company and cash in lieu of fractional shares, less any applicable taxes required to be withheld. In addition, immediately prior to the closing of the proposed merger, SCB paid special dividend to its shareholders in the aggregate amount of approximately $25 million. The SCB Merger was subject to customary closing conditions, including the approval of the appropriate regulatory authorities and of the stockholders of SCB.

The SCB Merger was completed on November 15, 2018 and an aggregate of 1,330,571 shares of common stock were issued, and approximately $19,046,000 was paid, to the stockholders of SCB, including cash in lieu of fractional shares. Soy Capital Bank and Trust Company (“Soy Capital Bank”), merged with and into First Mid Bank on April 6, 2019. At the time of the bank merger, Soy Capital Bank’s banking offices became branches of First Mid Bank.

~~At-The-Market Program~~

On August 16, ~~2017,~~2019, the Company ~~entered into~~adopted a ~~Sales Agency Agreement, pursuant~~repurchase plan under Rule 10b5-1 and Rule 10b-18 of the Exchange Act. The Company implemented the repurchase plan in connection with its previously announced stock repurchase program. Under the repurchase plan, up to ~~which~~approximately $6.2 million worth of shares of the Company’s common stock could have been repurchased. The 10b5-1 plan expired in early 2020, and there were no shares repurchased under this plan during 2020. During 2019, the Company ~~may sell, from time to time, up to an aggregate of $20~~repurchased approximately $1.1 million ~~of its common stock. Shares of~~in common stock, ~~are offered pursuant to the Company's shelf registration statement filed within the SEC. During the six months ended June 30, 2019, the company sold no shares of common stock~~or 35,427 shares. The Company has approximately $4.9 million in remaining capacity under ~~the program. As of June 30, 2019, approximately $16.53 million of common stock remained available for issuance under the At The Market~~its existing repurchase program.

~~Bank Owned Life Insurance~~

Stock Plans

At the Annual Meeting of Stockholders held April 26, 2017, the stockholders approved the First Mid-Illinois Bancshares, Inc. 2017 Stock Incentive Plan (“SI Plan”). The SI Plan was implemented to succeed the Company’s 2007 Stock Incentive Plan, which had a ten-year term. The SI Plan is intended to provide a means whereby directors, employees, consultants and advisors of the Company and its subsidiaries may sustain a sense of proprietorship and personal involvement in the continued development and financial success of the Company and its subsidiaries, thereby advancing the interests of the Company and its stockholders. Accordingly, directors and selected employees, consultants and advisors may be provided the opportunity to acquire shares of common stock of the Company on the terms and conditions established in the SI Plan.

A maximum of 149,983 shares of common stock may be issued under the SI Plan. There have been no stock options awarded under any Company plan since 2008. The Company has awarded ~~10,500~~25,200 and ~~13,250~~25,950 shares of restricted stock during ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~15,540~~16,950 and ~~28,700~~16,200 restricted stock units during 2020 and 2019, ~~and 2018,~~ respectively.

Employee Stock Purchase Plan

At the Annual Meeting of Stockholders held April 25, 2018, the stockholders approved the First Mid-Illinois Bancshares, Inc. Employee Stock Purchase Plan (“ESPP”). The ESPP is intended to promote the interests of the Company by providing eligible employees with the opportunity to purchase shares of common stock of the Company at a 5% discount through payroll deductions. The ESPP is also intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code.

A maximum of 600,000 shares of common stock may be issued under the ESPP. As of ~~June 30,~~March 31, 2020 and 2019, ~~2,858~~3,804 shares and 782 shares, respectively, were issued pursuant to the ESPP.

~~General Litigation~~

Captive Insurance Company

First Mid Captive, Inc. ("the Captive"), a wholly-owned subsidiary of the Company which was formed and began operations in December 2019, is a Nevada-based captive insurance company. The Captive insures against certain risks unique to operations of the Company and its subsidiaries for which insurance may not be currently available or economically feasible in today's insurance marketplace. The Captive pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves. The Captive is subject to ~~claims~~regulations of the State of Nevada and ~~lawsuits that arise primarily~~undergoes periodic examinations by the Nevada Division of Insurance. It has elected to be taxed under Section 831(b) of the Internal Revenue Code. Pursuant to Section 831(b), if gross premiums do not exceed $2,300,000, then the Captive is taxable solely on its investment income. The Captive is included in the ~~ordinary course of business. It~~Company's consolidated financial statements and its federal income return.

Bank Owned Life Insurance

First Mid Bank has purchased life insurance policies on certain senior management. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the ~~opinion of management~~cash surrender value adjusted for other charges or other amounts that ~~the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Company.~~are probable at settlement.

Revenue Recognition

Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), establishes a revenue recognition model for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. Most of the Company’s revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as loans and investment securities, and revenue related to mortgage servicing activities, which are subject to other accounting standards. A description of the revenue-generating activities that are within the scope of ASC 606, and included in other income in the Company’s condensed consolidated statements of income are as follows:

Trust revenues. The Company generates fee income from providing fiduciary services through its subsidiary, First Mid Wealth Management Company. Fees are billed in arrears based upon the preceding period account balance. Revenue from the farm management department is recorded when service is complete, for example when crops are sold.

Brokerage commissions. The primary brokerage revenue is recorded at the beginning of each quarter through billing to customers based on the account asset size on the last day of the previous quarter. If a withdrawal of funds takes place, a prorated refund may occur; this is reflected within the same quarter as the original billing occurred. All performance obligations are met within the same quarter that the revenue is recorded.

Insurance commissions. The Company’s insurance agency subsidiary, First Mid Insurance, receives commissions on premiums of new and renewed business policies. First Mid Insurance records commission revenue on direct bill policies as the cash is received. For agency bill policies, First Mid Insurance retains its commission portion of the customer premium payment and remits the balance to the carrier. In both cases, the entire performance obligation is held by the carriers.

Service charges on deposits. The Company generates revenue from fees charged for deposit account maintenance, overdrafts, wire transfers, and check fees. The revenue related to deposit fees is recognized at the time the performance obligation is satisfied.

ATM/debit card revenue. The Company generates revenue through service charges on the use of its ATM machines and interchange income from the use of Company issued credit and debit cards. The revenue is recognized at the time the service is used and the performance obligation is satisfied.

Other income. Treasury management fees and lock box fees are received and recorded after the service performance obligation is completed. Merchant bank card fees are received from various vendors, however the performance obligation is with the vendors. The Company records gains on the sale of loans and the sale of OREO properties after the transactions are complete and transfer of ownership has occurred.

As each of the Company’s facilities is located in markets with similar economies, no disaggregation of revenue is necessary.

Leases

Effective January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842). As of ~~June 30, 2019, substantially~~March 31, 2020, all of the Company's leases are operating leases for real estate property for bank branches, ATM locations, and office space. For leases in effect at January 1, 2019 and for leases commencing thereafter, the Company recognizes a lease liability and a right-of-use asset, based on the present value of lease payments over the lease term. The discount rate used in determining present value was the Company's incremental borrowing rate which is the FHLB fixed advance rate based on the remaining lease term as of January 1, 2019, or the commencement date for leases subsequently entered into.

Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) included in stockholders’ equity as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are as follows (in thousands):


	Unrealized Gain (Loss) on Securities			Unrealized Gain (Loss) on Securities
June 30, 2019
March 31, 2020
Net unrealized gains on securities available-for-sale	$	10,272		$	7,366
Unamortized losses on held-to-maturity securities transferred from available-for-sale	(109		)	(30		)
Tax expense	(2,947		)	(2,127		)
Balance at June 30, 2019	$	7,216
Balance at March 31, 2020				$	5,209

December 31, 2018
Net unrealized losses on securities available-for-sale $ (8,951 )
Unamortized losses on held-to-maturity securities transferred from available-for-sale (166 )
Tax benefit 2,644
Balance at December 31, 2018 $ (6,473 )



December 31, 2019
Net unrealized gains on securities available-for-sale	$	11,825
Unamortized losses on held-to-maturity securities transferred from available-for-sale	(50		)
Tax Expense	(3,415		)
Balance at December 31, 2019	$	8,360

Amounts reclassified from accumulated other comprehensive income and the affected line items in the statements of income during the ~~three and~~ ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~, were as follows (in thousands):


	Amounts Reclassified from Other Comprehensive Income												Affected Line Item in the Statements of Income	Amounts Reclassified from Other Comprehensive Income						Affected Line Item in the Statements of Income
	Amounts Reclassified from Other Comprehensive Income													Amounts Reclassified from Other Comprehensive Income
	Three months ended June 30,						Six months ended June 30,							Three months ended March 31,
	2019			2018			2019			2018				2020			2019
Realized gains on available-for-sale securities	$	218		$	881		$	272		$	901		Securities gains, net	$	531		$	54		Securities gains, net
													(Total reclassified amount before tax)
	(63		)	(255		)	(79		)	(261		)	Income taxes
Tax effect														(154		)	(16		)	Income taxes
Total reclassifications out of accumulated other comprehensive income	$	155		$	626		$	193		$	640		Net reclassified amount	$	377		$	38		Net reclassified amount

See “Note 3 – Investment Securities” for more detailed information regarding unrealized losses on available-for-sale securities.

Adoption of New Accounting Guidance

Accounting Standards Update ~~2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification ("ASU 2017-09").~~ In May 2017, FASB issued ASU 2017-09. This update provides guidance on determining which changes to the terms and conditions of share-based payment awards require the application of modification accounting under Topic 718. The guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The amendments should be applied on a prospective basis to an award modified on or after adoption date. ASU 2017-09 did not have a significant impact on the Company's consolidated financial statement.

~~Accounting Standards Update 2017-08, Receivables-Nonrefundable Fees and Other Costs ("ASU 2017-08").~~ In March 2017, FASB issued ASU 2017-08. This update amends the amortization period for certain purchased callable debt securities held at a premium. The update shortens the premium's amortization period to the earliest call date to more closely align the amortization period of premiums to expectations incorporated in market pricing on the underlying securities. For public companies, the update is effective for annual periods beginning after December 15, 2018, and is to be applied on a modified retrospective basis with a cumulative-effect adjustment directly to retained earnings as of the beginning of the adoption period. Early adoption was permitted, including adoption in an interim period. The Company adopted ASU 2017-08 early and there was not a significant impact on the Company's consolidated financial statements.

~~Accounting Standards Update~~ 2017-04, ~~Intangibles--Goodwill~~Intangibles-Goodwill and Other (Topic 350: Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). In January 2017, FASB issued ASU 2017-04. The amendments in this update simplify the measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under this guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for public companies for the reporting periods beginning after December 15, 2019. ~~Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after~~The Company adopted the guidance effective January ~~1, 2017.~~2020. Although the Company cannot anticipate future goodwill impairment, ~~based on~~ the ~~most recent assessment, it is unlikely that an impairment amount would need to be calculated and, therefore,~~Company does not anticipate a material impact on the Company's ~~consolidated~~ financial statements. The current accounting policies and procedures of the Company ~~are~~have not ~~anticipated to change,~~changed, except for the elimination of ~~the~~ Step 2 analysis.

1311

~~Pending New~~

Accounting ~~Guidance~~Standards Update 2016-02, Leases (Topic 842)("ASU 2016-02"). On February 25, 2016, FASB issued ASU 2016-02 which creates Topic 842, Leases and supersedes Topic 840, Leases. ASU 2016-02 is intended to improve financial reporting about leasing transactions, by increasing transparency and comparability among organizations. Under the new guidance, a lessee is required to record all leases with lease terms of more than 12 months on their balance sheet as lease liabilities with a corresponding right-of-use asset. ASU 2016-02 maintains the dual model for lease accounting, requiring leases to be classified as either operating or finance, with lease classification determined in a manner similar to existing leas guidance. The new guidance is effective for public companies for fiscal years beginning on or after December 15, 2018, and for private companies for fiscal years beginning on or after December 15, 2019. The Company adopted the guidance effective January 1, 2019 and recorded a right of use asset of $14.1 million and a lease liability of $14.1 million.

Accounting Standards Update 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). In August 2018, FASB issued ASU 2018-13. This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, an entity will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019. As ASU 2018-13 only revises disclosure requirements, it did not have a material impact on the Company’s consolidated financial statements.

Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments (“ASU 2016-13”). In June 2016, FASB issued ASU 2016-13. The provisions of ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate its lifetime "expected credit loss" and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. ASU 2016-13 also requires new disclosures for financial assets measured at amortized cost, loans and ~~available-for-sale~~available-for sale debt securities. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted.

Management ~~has~~ formed an internal, cross functional committee in 2017 to evaluate implementation steps and assess the impact ASU 2016-13 ~~will~~would have on the Company’s consolidated financial statements. The committee ~~has~~ assigned roles and responsibilities, key tasks to complete, and ~~has~~ established a general ~~timeline~~time line for implementation. The Company also engaged an outside consultant to assist with the methodology review and data validation, as well as other key aspects of implementing the standard. The committee ~~meets~~met periodically to discuss the latest developments and ensure progress iswas being made. ~~The team also keeps~~In addition, the committee kept current on evolving interpretations and industry practices related to ASU 2016-13. The committee ~~is currently focusing on~~evaluated and validated data resources and ~~model validation~~different loss methodologies. Key implementation activities for 2019 included finalization of models, establishing processes and ~~expects to begin~~controls, development of supporting analytics and documentation, policies and disclosure, and implementing parallel processing with the existing allowance for loan losses model during the third quarter of 2019. Once the parallel processing is in place, the committee will focus on evaluating the analysis output and refining the model assumptions.The committee is still evaluating the impactprocessing.

The Company adopted ASU 2016-13 ~~will have on~~using the ~~Company's consolidated~~modified retrospective method for financial ~~statements. In addition,~~assets measured at amortized cost effective January 1, 2020. Results for the ~~committee is contemplating required changes to current accounting policies, developing procedures and related controls, and determining required reporting disclosures.~~

~~Accounting Standards Update 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”).~~In August 2018, FASB issued ASU 2018-13. This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, an entity will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for interim and annual reporting periods beginning after ~~December 15, 2019; early~~January 1, 2020 are presented under ASU 2016-13 while prior period amounts are reported in accordance with the previously applicable accounting standards. The Company recorded a reduction to retained earnings of approximately $717,000 upon adoption ~~is permitted. As~~of ASU ~~2018-13 only revises disclosure requirements, it will~~2016-13. The transition adjustment included an increase to the allowance for credit losses on loans of $1.7 million and an increase to the allowance for credit losses on off-balance sheet credit exposure of $69,000. There was no allowance for credit losses recorded for held-to-maturity debt securities. The transition adjustment included corresponding increases in deferred tax assets.

The Company adopted ASU 2016-13 using the prospective transition approach for financial assets considered purchased credit deteriorated ("PCD") that were previously classified as purchase credit impaired (" PCI") and accounted for under ASC 310-30 effective January 1 2020. In accordance with the standard, the Company did not ~~have a material impact~~reassess whether the PCI assets met the criteria of PCD assets as of the adoption date. The amortized cost of the PCD assets were adjusted to reflect the addition of $833,000 to the allowance for credit losses. The remaining noncredit discount (based on the ~~Company’s consolidated financial statements.~~adjusted amortized cost) will be accreted into interest income at the effective interest rate over the remaining life of the assets.

The following table illustrates the impact of ASU 2016-13 adoption (in thousands):



	January 1, 2020
	As reported under ASU 2016-13		Pre-ASU 2016-13 Adoption		Impact of ASU 2016-13 Adoption
Assets:
Construction & Land Development	$	1,033	$	1,146	$	(113	)
Farm	1,323		1,093		230
1-4 Family Residential Properties	2,142		1,386		756
Commercial Real Estate	11,739		11,198		541
Agricultural	1,023		1,386		(363		)
Commercial & Industrial	9,428		9,273		155
Consumer	1,895		1,429		466
Allowance for credit losses for all loans	$	28,583	$	26,911	$	1,672
Liabilities:
Allowance for credit losses on off-balance sheet exposures	$	69	$	—	$	69

The following table illustrates the impact of ASU 2013-13 adoption for PCD assets previously classified as PCI included in the table above (in thousands):



	January 1, 2020
	As reported under ASU 2016-13		Pre-ASU 2016-13 Adoption		Impact of ASU 2016-13 Adoption
Construction & Land Development	$	291	$	—	$	291
1-4 Family Residential Properties	48		6		42
Commercial Real Estate	818		359		459
Commercial & Industrial	41		—		41
Allowance for credit losses for PCD loans	$	1,198	$	365	$	833

1413

Note 2 -- Earnings Per Share

Basic net income per common share available to common stockholders is calculated as net income less preferred stock dividends divided by the weighted average number of common shares outstanding. Diluted net income per common share available to common stockholders is computed using the weighted average number of common shares outstanding, increased by the Company’s stock options, unless anti-dilutive.

The components of basic and diluted net income per common share available to common stockholders for the three ~~and six~~-month period ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ were as follows:


	Three months ended June 30,				Six months ended June 30,				Three months ended March 31,
	2019		2018		2019		2018		2020		2019
Basic Net Income per Common Share
Available to Common Stockholders:
Net income	$	10,981,000	$	10,037,000	$	24,297,000	$	18,427,000	$	9,999,000	$	13,316,000
Weighted average common shares outstanding	16,683,194		13,956,674		16,674,646		13,317,395		16,693,183		16,665,999
Basic earnings per common share	$	0.66	$	0.72	$	1.46	$	1.38	$	0.60	$	0.80

Diluted Net Income per Common Share
Available to Common Stockholders:
Net income applicable to diluted earnings per share	$	10,981,000	$	10,037,000	$	24,297,000	$	18,427,000	$	9,999,000	$	13,316,000
Weighted average common shares outstanding	16,683,194		13,956,674		16,674,646		13,317,395		16,693,183		16,665,999
Dilutive potential common shares:
Assumed conversion of stock options	—		4,124		—		4,053
Restricted stock awarded	34,780		13,250		34,780		13,250		46,908		38,780
Dilutive potential common shares	34,780		17,374		34,780		17,303		46,908		38,780
Diluted weighted average common shares outstanding	16,717,974		13,974,048		16,709,426		13,334,698		16,740,091		16,704,779
Diluted earnings per common share	$	0.66	$	0.72	$	1.45	$	1.38	$	0.60	$	0.80

There were no shares not considered in computing diluted earnings per share for the ~~three and six-month~~three-month periods ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ because they were anti-dilutive.

1514

Note 3 -- Investment Securities

The amortized cost, gross unrealized gains and losses and estimated fair values for available-for-sale and held-to-maturity securities by major security type at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 were as follows (in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
June 30, 2019
March 31, 2020
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations & agencies	$	192,035	$	1,585	$	(196	)	$	193,424	$	56,067	$	716	$	(94	)	$	56,689
Obligations of states and political subdivisions	181,353		4,946		(70		)	186,229		167,146		260		(3,904		)	163,502
Mortgage-backed securities: GSE residential	370,752		4,505		(611		)	374,646		385,194		10,717		(400		)	395,511
Other securities	3,278		113		—			3,391		2,028		112		(41		)	2,099
Total available-for-sale	$	747,418	$	11,149	$	(877	)	$	757,690	$	610,435	$	11,805	$	(4,439	)	$	617,801
Held-to-maturity:
U.S. Treasury securities and obligations of U.S. government corporations & agencies	$	69,488	$	90	$	(137	)	$	69,441	$	24,563	$	243	$	—		$	24,806

December 31, 2018
December 31, 2019
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations & agencies	$	201,380	$	504	$	(3,235	)	$	198,649	$	106,428	$	952	$	(60	)	$	107,320
Obligations of states and political subdivisions	193,195		1,224		(1,840		)	192,579		172,460		5,990		(17		)	178,433
Mortgage-backed securities: GSE residential	304,372		486		(6,186		)	298,672		391,307		5,331		(512		)	396,126
Other securities	2,278		96		—			2,374		4,028		141		—			4,169
Total available-for-sale	$	701,225	$	2,310	$	(11,261	)	$	692,274	$	674,223	$	12,414	$	(589	)	$	686,048
Held-to-maturity:
U.S. Treasury securities and obligations of U.S. government corporations & agencies	$	69,436	$	—	$	(1,527	)	$	67,909	$	69,542	$	99	$	(69	)	$	69,572

All of the Company's held-to-maturity securities are government agency-backed securities for which the risk of loss is minimal. As such, as of March 31, 2020, the Company did not recorded an allowance for credit losses on its held-to-maturity securities.

Realized gains and losses resulting from sales of securities were as follows during the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands):


	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2019			2018			2019			2018			2020		2019
Gross gains	$	230		$	921		$	314		$	941		$	531	$	84
Gross losses	(12		)	(40		)	(42		)	(40		)	—		(30		)

1615

The following table indicates the expected maturities of investment securities classified as available-for-sale presented at fair value, and held-to-maturity presented at amortized cost, at ~~June 30, 2019~~March 31, 2020 and the weighted average yield for each range of maturities (dollars in thousands):


	One year or less			After 1 through 5 years			After 5 through 10 years			After ten years			Total			One year or less			After 1 through 5 years			After 5 through 10 years			After ten years			Total
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	154,270		$	39,154		$	—		$	—		$	193,424		$	41,026		$	15,663		$	—		$	—		$	56,689
Obligations of state and political subdivisions	26,788			79,451			79,012			978			186,229			26,677			69,512			65,164			2,149			163,502
Mortgage-backed securities: GSE residential	1,936			283,263			89,447			—			374,646			73,878			310,186			11,447			—			395,511
Other securities	2,007			1,000			—			384			3,391			—			1,759			—			340			2,099
Total available-for-sale investments	$	185,001		$	402,868		$	168,459		$	1,362		$	757,690		$	141,581		$	397,120		$	76,611		$	2,489		$	617,801
Weighted average yield	2.65		%	2.82		%	2.91		%	3.07		%	2.80		%	2.42		%	2.67		%	2.93		%	2.88		%	2.65		%
Full tax-equivalent yield	2.80		%	3.04		%	3.45		%	4.07		%	3.07		%	2.63		%	2.87		%	3.93		%	3.79		%	2.96		%
Held to Maturity:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	54,521		$	14,967		$	—		$	—		$	69,488		$	19,536		$	5,027		$	—		$	—		$	24,563
Weighted average yield	1.80		%	2.24		%	—		%	—		%	1.90		%	1.93		%	2.06		%	—		%	—		%	1.96		%
Full tax-equivalent yield	1.80		%	2.24		%	—		%	—		%	1.90		%	1.93		%	2.06		%	—		%	—		%	1.96		%

The weighted average yields are calculated on the basis of the amortized cost and effective yields weighted for the scheduled maturity of each security. Tax-equivalent yields have been calculated using a 21% tax rate. With the exception of obligations of the U.S. Treasury and other U.S. government agencies and corporations, there were no investment securities of any single issuer, the book value of which exceeded 10% of stockholders' equity at ~~June 30, 2019.~~March 31, 2020.

Investment securities carried at approximately $~~652~~582 million and $~~628~~688 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019, respectively, were pledged to secure public deposits and repurchase agreements and for other purposes as permitted or required by law.

1716

The following table presents the aging of gross unrealized losses and fair value by investment category as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):


	Less than 12 months					12 months or more					Total					Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
June 30, 2019
March 31, 2020
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies																$	5,802	$	(94	)	$	—	$	—		$	5,802	$	(94	)
Obligations of states and political subdivisions																119,614		(3,904		)	—		—			119,614		(3,904		)
Mortgage-backed securities: GSE residential																51,736		(315		)	3,679		(85		)	55,415		(400		)
Other securities																709		(41		)	—		—			709		(41		)
Total																$	177,861	$	(4,354	)	$	3,679	$	(85	)	$	181,540	$	(4,439	)
December 31, 2019
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	2,492	$	(7	)	$	34,340	$	(189	)	$	36,832	$	(196	)	$	23,375	$	(60	)	$	—	$	—		$	23,375	$	(60	)
Obligations of states and political subdivisions	—		—			13,143		(70		)	13,143		(70		)	3,469		(16		)	347		(1		)	3,816		(17		)
Mortgage-backed securities: GSE residential	1,039		(2		)	58,297		(609		)	59,336		(611		)	67,080		(322		)	20,888		(190		)	87,968		(512		)
Total	$	3,531	$	(9	)	$	105,780	$	(868	)	$	109,311	$	(877	)	$	93,924	$	(398	)	$	21,235	$	(191	)	$	115,159	$	(589	)
Held-to-maturity:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	—	$	—		$	39,428	$	(137	)	$	39,428	$	(137	)	$	14,996	$	(25	)	$	24,565	$	(44	)	$	39,561	$	(69	)
December 31, 2018
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	16,095	$	(148	)	$	105,549	$	(3,087	)	$	121,644	$	(3,235	)
Obligations of states and political subdivisions	38,782		(450		)	42,741		(1,390		)	81,523		(1,840		)
Mortgage-backed securities: GSE residential	81,435		(1,150		)	171,321		(5,036		)	252,756		(6,186		)
Total	$	136,312	$	(1,748	)	$	319,611	$	(9,513	)	$	455,923	$	(11,261	)
Held-to-maturity:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	19,683	$	(147	)	$	48,226	$	(1,380	)	$	67,909	$	(1,527	)

U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies. At ~~June 30,~~March 31, 2020 and December 31, 2019, there were ~~eight~~no available-for sale U.S. Treasury securities and obligations of U.S. government corporations and agencies ~~with a fair value of $34,340,000 and unrealized losses of $189,000~~ in a continuous unrealized loss position for twelve months or more. At December 31, 2018, there were twenty-three available-for sale U.S. Treasury securities and obligations of U.S. government corporations and agencies with a fair value of $105,549,000 and unrealized losses of $3,087,000 in a continuous unrealized loss position for twelve months or more. At June 30, 2019, there were ~~seven~~four held-to-maturity U.S. Treasury securities and obligations of U.S. government corporations and agencies with a fair value of ~~$39,428,000~~$24,565,000 and unrealized losses of $137,000 in a continuous unrealized loss position for twelve months or more. At December 31, 2018, there were nine held-to-maturity U.S. Treasury securities and obligations of U.S. government corporations and agencies with a fair value of $48,226,000 and unrealized losses of $1,380,000$44,000 in a continuous unrealized loss position for twelve months or more.

Obligations of states and political subdivisions. At ~~June 30, 2019~~March 31, 2020, there were ~~twenty-five~~no obligations of states and political subdivisions ~~with a fair value of $13,143,000 and unrealized losses of $70,000~~ in a continuous loss position for twelve months or more. At December 31, ~~2018,~~2019, there ~~were eighty-four obligations~~was one obligation of states and political subdivisions with a fair value of ~~$42,741,000~~$347,000 and unrealized losses of ~~$1,390,000~~$1,000 in a continuous unrealized loss position for twelve months or more.

Mortgage-backed Securities: GSE Residential. At ~~June 30, 2019~~March 31, 2020, there were ~~twenty-nine~~five mortgage-backed securities with a fair value of ~~$58,297,000~~$3,679,000 and unrealized losses of ~~$609,000~~$85,000 in a continuous unrealized loss position for twelve months or more. At December 31, ~~2018~~2019, there were ~~sixty-nine~~fourteen mortgage-backed securities with a fair value of ~~$171,321,000~~$20,888,000 and unrealized losses of ~~$5,036,000~~$190,000 in a continuous unrealized loss position for twelve months or more.

The Company does not believe any other individual unrealized loss as of ~~June 30, 2019~~March 31, 2020 represents other than temporary impairment ("OTTI"). However, given the ~~continued disruption in~~uncertainty of the financial markets, the Company may be required to recognize OTTI losses in future periods with respect to its available for sale investment securities portfolio. The amount and timing of any additional OTTI will depend on the decline in the underlying cash flows of the securities. Should the impairment of any of these securities become other-than-temporary, the cost basis of the investment will be reduced and the resulting loss recognized in the period the other-than-temporary impairment is identified.

~~Other-than-temporary Impairment.~~ Upon acquisition of a security, the Company determines whether it is within the scope of the accounting guidance for investments in debt and equity securities or whether it must be evaluated for impairment under the accounting guidance for beneficial interests in securitized financial assets.

~~If the Company determined that a given pooled trust preferred security position would be subject to a write-down or loss, the Company would record the expected credit loss as a charge to earnings.~~

~~Credit Losses Recognized on Investments.~~ The following table provides information about the trust preferred security for which only a credit loss was recognized in income and other losses were recorded in other comprehensive income (loss) for the ~~six months ended June 30, 2019~~ ~~and~~ ~~2018~~ ~~(in thousands).~~

Accumulated Credit Losses
June 30, 2019 June 30, 2018
Credit losses on trust preferred securities held
Beginning of period $ —
$ 1,111
Additions related to OTTI losses not previously recognized —
—
Reductions due to sales / (recoveries) —
—
Reductions due to change in intent or likelihood of sale —
(1,111 )
Additions related to increases in previously recognized OTTI losses —
—
Reductions due to increases in expected cash flows —
—
End of period $ —
$ —

On May 29, 2018 the Company sold its trust preferred security. This sale resulted in recovery of all of the book value of the security. The net proceeds exceeded the aggregate book value of these securities by approximately $846,000 and this amount was recorded as a security gain during the second quarter of 2018.

1917

Note 4 – Loans and Allowance for Loan Losses

Loans are stated at amortized cost net of an allowance for credit losses. Amortized cost is the unpaid principal ~~amount outstanding~~ net of unearned premiums and discounts, ~~unearned income~~ and ~~allowance for loan losses. Unearned income includes~~net deferred origination fees and costs. Deferred loan origination fees are reduced by loan origination costs and isare amortized to interest income over the life of the related loan using methods that approximated the effective interest rate method. Interest on substantially all loans is credited to income based on the principal amount outstanding. A summary of loans at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 follows (in thousands):


	June 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Construction and land development	$	57,410	$	51,013	$	123,346	$	94,462
Agricultural real estate	230,421		232,409		242,541		240,481
1-4 Family residential properties	355,922		374,751		325,146		336,553
Multifamily residential properties	169,370		186,393		140,536		155,132
Commercial real estate	892,269		911,656		1,003,021		997,175
Loans secured by real estate	1,705,392		1,756,222		1,834,590		1,823,803
Agricultural loans	118,150		136,125		139,014		136,023
Commercial and industrial loans	530,749		559,120		565,714		528,987
Consumer loans	85,630		92,744		82,330		83,544
All other loans	114,792		113,925		123,482		126,807
Total Gross loans	2,554,713		2,658,136		2,745,130		2,699,164
Less: Loans held for sale	1,717		1,508		1,251		1,820
	2,552,996		2,656,628		2,743,879		2,697,344
Less:
Net deferred loan fees, premiums and discounts	8,170		13,617		832		3,817
Allowance for loan losses	26,359		26,189
Allowance for credit losses					32,876		26,911
Net loans	$	2,518,467	$	2,616,822	$	2,710,171	$	2,666,616

Net loans decreased $98.4 million as of June 30, 2019 compared to December 31, 2018. The primary reason for the decrease was due to seasonal paydowns in agriculture operating loans and declines in 1-4 Family residential properties, Multifamily residential properties, and commercial and industrial loans due to higher payoffs of acquired loans. Loans expected to be sold are classified as held for sale in the consolidated financial statements and are recorded at the lower of aggregate cost or fair value, taking into consideration future commitments to sell the loans. These loans are primarily for 1-4 family residential properties.

Accrued interest on loans, which is excluded from the amortized cost of the balances above, totaled $12.5 million and $12.3 million at March 31, 2020 and December 31, 2019, respectively.

Most of the Company’s business activities are with customers located near the Company's branch locations in Illinois and Missouri. At ~~June 30, 2019,~~March 31, 2020, the Company’s loan portfolio included $~~348.6~~381.6 million of loans to borrowers whose businesses are directly related to agriculture. Of this amount, $~~264.1~~309.4 million was concentrated in corn and other grain farming. Total loans to borrowers whose businesses are directly related to agriculture ~~decreased $19.9~~increased $5.2 million from ~~$368.5~~$376.4 million at December 31, ~~2018~~2019 due to seasonal ~~paydowns based upon~~ timing of cash flow requirements. Loans concentrated in corn and other grain farming ~~decreased~~increased ~~$12.0~~$7.9 million from $~~276.1~~301.5 million at December 31, ~~2018~~2019. ~~While the Company adheres to sound~~The Company's underwriting practices ~~including~~include collateralization of loans, any extended period of low commodity prices, drought conditions, significantly reduced yields on crops and/or reduced levels of government assistance to the agricultural industry, however these could result in an increase in the level of problem agriculture loans and potentially result in loan losses within the agricultural portfolio.

In addition, the Company has $~~127.1~~119.7 million of loans to motels and hotels. The performance of these loans is dependent on borrower specific issues as well as the general level of business and personal travel within the region. While the Company adheres to sound underwriting standards, a prolonged period of reduced business or personal travel could result in an increase in nonperforming loans to this business segment and potentially in loan losses. The Company also has ~~$235.0~~$294.6 million of loans to lessors of non-residential buildings, ~~$288.4~~$280.9 million of loans to lessors of residential buildings and dwellings, $108.7 million of loans to nursing care facilities, and ~~$90.1~~$123.4 million of loans to other gambling industries.

2018

The structure of the Company’s loan approval process is based on progressively larger lending authorities granted to individual loan officers, loan committees, and ultimately the board of directors. Outstanding balances to one borrower or affiliated borrowers are limited by federal regulation and the vast majority of borrowers are below regulatory thresholds. The Company can occasionally have outstanding balances to one borrower up to but not exceeding the regulatory threshold should underwriting guidelines warrant. The vast majority of the Company’s loans are to businesses located in the geographic market areas served by the Company’s branch bank system. Additionally, a significant portion of the collateral securing the loans in the portfolio is located within the Company’s primary geographic footprint. In general, the Company adheres to loan underwriting standards consistent with industry guidelines for all loan segments.

The Company’s lending can be summarized into the following primary areas:

Commercial Real Estate Loans. Commercial real estate loans are generally comprised of loans to small business entities to purchase or expand structures in which the business operations are housed, loans to owners of real estate who lease space to non-related commercial entities, loans for construction and land development, loans to hotel operators, and loans to owners of multi-family residential structures, such as apartment buildings. Commercial real estate loans are underwritten based on historical and projected cash flows of the borrower and secondarily on the underlying real estate pledged as collateral on the debt. For the various types of commercial real estate loans, minimum criteria have been established within the Company’s loan policy regarding debt service coverage while maximum limits on loan-to-value and amortization periods have been defined. Maximum loan-to-value ratios range from 65% to 80% depending upon the type of real estate collateral, while the desired minimum debt coverage ratio is 1.20x. Amortization periods for commercial real estate loans are generally limited to twenty years. The Company’s commercial real estate portfolio is well below the thresholds that would designate a concentration in commercial real estate lending, as established by the federal banking regulators.

Commercial and Industrial Loans. Commercial and industrial loans are primarily comprised of working capital loans used to purchase inventory and fund accounts receivable that are secured by business assets other than real estate. These loans are generally written for one year or less. Also, equipment financing is provided to businesses with these loans generally limited to 80% of the value of the collateral and amortization periods limited to seven years. Commercial loans are often accompanied by a personal guaranty of the principal owners of a business. Like commercial real estate loans, the underlying cash flow of the business is the primary consideration in the underwriting process. The financial condition of commercial borrowers is monitored at least annually with the type of financial information required determined by the size of the relationship. Measures employed by the Company for businesses with higher risk profiles include the use of government-assisted lending programs through the Small Business Administration and U.S. Department of Agriculture.

Agricultural and Agricultural Real Estate Loans. Agricultural loans are generally comprised of seasonal operating lines to cash grain farmers to plant and harvest corn and soybeans and term loans to fund the purchase of equipment. Agricultural real estate loans are primarily comprised of loans for the purchase of farmland. Specific underwriting standards have been established for agricultural-related loans including the establishment of projections for each operating year based on industry developed estimates of farm input costs and expected commodity yields and prices. Operating lines are typically written for one year and secured by the crop. Loan-to-value ratios on loans secured by farmland generally do not exceed 65% and have amortization periods limited to twenty five years. Federal government-assistance lending programs through the Farm Service Agency are used to mitigate the level of credit risk when deemed appropriate.

Residential Real Estate Loans. Residential real estate loans generally include loans for the purchase or refinance of residential real estate properties consisting of one-to-four units and home equity loans and lines of credit. The Company sells the vast majority of its long-term fixed rate residential real estate loans to secondary market investors. The Company also releases the servicing of these loans upon sale. The Company retains all residential real estate loans with balloon payment features. Balloon periods are limited to five years. Residential real estate loans are typically underwritten to conform to industry standards including criteria for maximum debt-to-income and loan-to-value ratios as well as minimum credit scores. Loans secured by first liens on residential real estate held in the portfolio typically do not exceed 80% of the value of the collateral and have amortization periods of twenty five years or less. The Company does not originate subprime mortgage loans.

2119

Consumer Loans. Consumer loans are primarily comprised of loans to individuals for personal and household purposes such as the purchase of an automobile or other living expenses. Minimum underwriting criteria have been established that consider credit score, debt-to-income ratio, employment history, and collateral coverage. Typically, consumer loans are set up on monthly payments with amortization periods based on the type and age of the collateral.

Other Loans. Other loans consist primarily of loans to municipalities to support community projects such as infrastructure improvements or equipment purchases. Underwriting guidelines for these loans are consistent with those established for commercial loans with the additional repayment source of the taxing authority of the municipality.

~~Purchase Credit-Impaired Loans.~~ Loans acquired with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include information such as past-due and nonaccrual status, borrower credit scores and recent loan to value percentages. Purchase credit-impaired ("PCI") loans are accounted for under ASC 310-30, ~~Receivables--Loans and Debt Securities Acquired with Deteriorated Credit Quality~~ ("ASC 310-30"), and are initially measured at fair value, which includes the estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans is not carried over and recorded at the acquisition date. The cash flows expected to be collected were estimated using current key assumptions, such as default rates, value of underlying collateral, severity and prepayment speeds.

Allowance for ~~Loan~~Credit Losses

The allowance for ~~loan~~credit losses represents the Company’s best estimate of the reserve necessary to adequately account for probable losses ~~existing in~~expected over the ~~current portfolio.~~remaining contractual life of the assets. The provision for ~~loan~~credit losses is the charge against current earnings that is determined by the Company as the amount needed to maintain an adequate allowance for ~~loan~~credit losses. In determining the adequacy of the allowance for ~~loan~~credit losses, and therefore the provision to be charged to current earnings, the Company relies predominantly on a disciplined credit review and approval process that extends to the full range of the Company’s credit exposure. The review process is directed by the overall lending policy and is intended to identify, at the earliest possible stage, borrowers who might be facing financial difficulty. Factors considered by the Company in evaluating the overall adequacy of the allowance include historical net loan losses, the level and composition of nonaccrual, past due and troubled debt restructurings, trends in volumes and terms of loans, effects of changes in risk selection and underwriting standards or lending practices, lending staff changes, concentrations of credit, industry conditions and the current economic conditions in the region where the Company operates. The Company estimates the appropriate level of allowance for ~~loan~~credit losses by ~~separately~~ evaluating large impaired loans ~~and nonimpaired loans.~~

~~The Company has loans acquired~~separately from business combinations with uncollected principal balances. These loans are carried net of a fair value adjustment for credit risk and interest rates and are only included in the allowance calculation to the extent that the reserve requirement exceeds the fair value adjustment. However, as the acquired loans renew, it is necessary to establish an allowance which represents an amount that, in management’s opinion, will be adequate to absorb probable credit losses inherent in suchnon-impaired loans.

Impaired loans

The Company individually evaluates certain loans for impairment. In general, these loans have been internally identified via the Company’s loan grading system as credits requiring management’s attention due to underlying problems in the borrower’s business or collateral concerns. This evaluation considers expected future cash flows, the value of collateral and also other factors that may impact the borrower’s ability to make payments when due. For loans greater than $250,000, and loans identified as troubled debt restructurings, impairment is individually measured each quarter using one of three alternatives: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price, if available; or (3) the fair value of the collateral less costs to sell for collateral dependent loans and loans for which foreclosure is deemed to be probable. A specific allowance is assigned when expected cash flows or collateral ~~do not justify~~are less than the carrying amount of the loan. The carrying value of the loan reflects reductions from prior charge-offs.

Non-Impaired loans

Non-impaired loans comprise the vast majority of the Company’s total loan portfolio and include loans in accrual status and those credits not identified as troubled debt restructurings. A small portion of these loans are considered “criticized” due to the risk rating assigned reflecting elevated credit risk due to characteristics, such as a strained cash flow position, associated with the individual borrowers. Criticized loans are those assigned risk ratings of Special Mention, Substandard, or Doubtful. ~~Determining~~

Beginning March 31, 2020, the allowance for credit losses was estimated using the current expected credit loss model ("CECL"). The Company uses the Loss Rate method to estimate the historical loss rate for all non-impaired loans. Under this method, the allowance for credit losses is measured on a collective (pool) basis for non-impaired loans with similar risk characteristics. Historical credit loss experience provides the basis for the estimate of expected credit losses. For each pool, a historical loss rate is computed based on the average remaining contractual life of the pool. Adjustments to historical loss rates are made using qualitative factors relevant to each pool including merger & acquisition activity, economic conditions, changes in policies, procedures & underwriting, and concentrations. In addition, a twelve-month forecast, using reasonable and supportable future conditions, is prepared that is used to estimate expected changes to existing and historical conditions in the current period.

The Company also considers specific current economic events occurring globally, in the U.S. and in its local markets. In March 2020, in response to the COVID-19 outbreak, its significant disruptions in the U.S. economy and impacts on local markets, First Mid Bank offered a 90-day commercial deferral program, primarily to hotel and restaurant borrowers. In accordance with interagency guidance issued in March 2020, these short term deferrals are not considered troubled debt restructurings. These deferrals were, however, considered in the factors used to estimate the required allowance for credit losses for non-impaired loans. Other COVID-19 related impacts considered included revenue losses of businesses required to restrict or cease services, income loss to workers laid off as a result of COVID-19 restrictions, various federal and state government stimulus programs and additional deferral programs offered by First Mid Bank beginning in April 2020. Other events considered include the status of trade agreements with China, scheduled increases in minimum wage and changes to the minimum salary threshold for overtime provisions, current and projected unemployment rates, current and projected grain and oil prices and economies of local markets where customers work and operate.

Within each pool, risk elements are evaluated that have specific impacts to the borrowers within the pool. These, along with the general risks and events, and the specific lending policies and procedures by loan type described above, are analyzed to estimate the qualitative factors used to adjust the historical loss rates.

During the current period, the following assumptions and factors were considered when determining the historical loss rate and any potential adjustments by loan pool.

Construction and Land Development Loans. The average life of the construction and land development segment was determined to be twelve months. Historical losses in this segment remained very low. Current activity in this industry was deemed essential and has continued during COVID-19 so no adjustment to the qualitative factor was considered necessary.

Farm Loans.The average life of the farm segment was determined to be thirty six months. Historical losses in the segment remain very low. Farmland values have remained steady over an extended period of time and there are no indications that this will change in the next year. There appears to be little or no impact from COVID-19 events on this segment. No adjustments to the qualitative factor was considered necessary.

1- 4 Family Residential Properties Loans.The average life of the 1-4 Family Residential segment was determined to be:

Residential Real Estate-non-owner occupied, fifty four months; Residential Real Estate-owner occupied, fifty four months; Home Equity lines of credit, thirty months. COVID-19 has impacted the finances of consumers from layoffs and furloughs resulting from employers have to reduce or suspend operations. Increased risk in this segment includes consumer ability to make mortgage and rent payments. Some of this impact has been offset by governmental actions such as stimulus payments and extended unemployment benefits. First Mid Bank has also offered short-term loan payment deferral to borrowers in this segment. The historical loss rate for this segment declined for the period but was offset by an increase in the qualitative factor to account for these new potential risks.

Commercial Real Estate Loans.The average life of the commercial real estate segment was determined to be thirty six months. This segment includes the Company's majority of exposure to the hotel industry which has been significantly impacted by COVID-19 events. Other impacted industries in this segment include restaurants and retail establishments. First Mid Bank has implemented a deferral program for borrowers in this segment in order to ease the impact to these borrowers. In addition to a slight increase in the historical loss rate, the qualitative factor for this segment was increased to account for these new risks.

Agricultural Loans. The average life of the agricultural segment was determined to be eighteen months. Losses in this segment are very low, however there was a very slight increase in the historical loss rate. It is believed that borrowers in this segment will benefit from current governmental programs such as PPP and MFP. There does not appear to be impact from COVID-19 at this time. There were no adjustments to the qualitative factor for this period.

Commercial and Industrial Loans.The average life of the commercial and industrial segment was determined to be twenty four months. The COVID-19 impacts include forced closures and scaled-back services for many industries within this segment including retailers, restaurants and video gaming establishments. Some of this risk is offset by government relief programs as well as, First Mid Bank's payment deferral program. In addition to an increase in the historical loss rate, the qualitative factor for this segment was increased to account for these new risks.

Consumer Loans.The average life of the consumer segment was determined to be thirty six months. The financial status of many borrowers has been impacted by COVID-19 events including layoffs and reduced hours. Some of this impact has been offset by government stimulus programs, increased paid leave and increased and extended unemployment benefits. Additionally, First Mid Bank has offered a short-term payment deferral program. The historical loss rate increased for this period and the qualitative factor for the segment was increased to account for the new risks.

Acquired Loans. Prior to January 1, 2020 loans acquired with evidence of credit deterioration since origination and for which it was probable that all contractually required payments would not be collected were considered to be purchased credit impaired at the time of acquisition. Purchase credit-impaired ("PCI") loans were accounted for under ASC 310-30, Receivables--Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 310-30"), and were initially measured at fair value, which included the estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans was not carried over and recorded at the acquisition date. The cash flows expected to be collected were estimated using current key assumptions, such as default rates, value of underlying collateral, severity and prepayment speeds.

Subsequent to January 1, 2020, loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered purchased credit deteriorated (“PCD”) loans. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. This initial allowance for credit losses is allocated to individual PCD loans and added to the purchase price or acquisition date fair values to establish the initial amortized cost basis of the PCD loans. As the initial allowance for credit losses is added to the purchase price, there is no credit loss expense recognized upon acquisition of a PCD loan. Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to noncredit factors and results in a discount or premium. Discounts and premiums are recognized through interest income on a level-yield method over the life of the loans. All loans considered to be PCI prior to January 1, 2020 were converted to PCD on that date. Accordingly, on January 1, 2020, the amortized cost basis of the PCD loans were adjusted to reflect the addition of $833,000 to the allowance for credit losses.

For acquired loans not deemed purchased credit deteriorated at acquisition, the differences between the initial fair value and the unpaid principal balance are recognized as interest income on a level-yield basis over the lives of the related loans. At the acquisition date, an initial allowance for expected credit losses is estimated and recorded as credit loss expense. The subsequent measurement of expected credit losses for all acquired loans is the same as the subsequent measurement of expected credit losses for originated loans.

The following tables present the activity in the allowance for credit losses based on portfolio segment for the three-months ended March 31, 2020 (in thousands):



	Construction & Land Development			Agricultural Real Estate		1-4 Family Residential Properties			Commercial Real Estate		Agricultural Loans			Commercial & Industrial		Consumer Loans		Total
Three months ended March 31, 2020
Beginning Balance (prior to adoption of ASU 2016-13)	$	1,146		$	1,093	$	1,386		$	11,198	$	1,386		$	9,273	$	1,429	$	26,911
Impact of adopting ASU 2016-13	(113		)	230		756			541		(363		)	155		466		1,672
Provision for credit loss expense	587			12		(77		)	1,961		41			2,815		142		5,481
Loans charged off	—			—		196			84		—			972		171		1,423
Recoveries collected	—			—		62			5		—			23		145		235
Ending balance	$	1,620		$	1,335	$	1,931		$	13,621	$	1,064		$	11,294	$	2,011	$	32,876

Prior to the adoption of ASU 2016-13, the appropriate level of the allowance for loan losses for all non-impaired loans iswas based on a migration analysis of net losses over a rolling twelve quarter period by loan segment. A weighted average of the net losses iswas determined by assigning more weight to the most recent quarters in order to recognize current risk factors influencing the various segments of the loan portfolio more prominently than past periods. Environmental factors including changes in economic conditions, changes in credit policies or underwriting standards, and changes in the level of credit risk associated with specific industries and markets are evaluated each quarter to determine if adjustments to the weighted average historical net losses is appropriate given these current influences on the risk profile of each loan segment. Because the economic and business climate in any given industry or market, and its impact on any given borrower, can change rapidly, the risk profile of the loan portfolio is periodically assessed and adjusted when appropriate. Consumer loans are evaluated for adverse classification based primarily on the Uniform Retail Credit Classification and Account Management Policy established by the federal banking regulators. Classification standards are generally based on delinquency status, collateral coverage, bankruptcy and the presence of fraud.

Due to weakened economic conditions during historical years, the Company established qualitative factor adjustments for each of the loan segments at levels above the historical net loss averages. Some of the economic factors included the potential for reduced cash flow for commercial operating loans from reduction in sales or increased operating costs, decreased occupancy rates for commercial buildings, reduced levels of home sales for commercial land developments, the uncertainty regarding grain prices and increased operating costs for farmers, and increased levels of unemployment and bankruptcy impacting consumer’s ability to pay. Each of these economic uncertainties was taken into consideration in developing the level of the allowance for loan losses.

The Company has not materially changed any aspect of its overall approach in the determination of the allowance for loan losses. However, on an on-going basis the Company continues to refine the methods used in determining management’s best estimate of the allowance for loan losses.

The following tables present the ~~balance~~activity in the allowance for ~~loan~~credit losses ~~and the recorded investment in loans~~ based on portfolio segment ~~and impairment method~~ for the ~~three and six-months~~three-months ended ~~June 30,~~March 31, 2019 ~~and 2018~~ and for the year ended December 31, ~~2018~~2019 (in thousands):

Commercial/ Commercial Real Estate Agricultural/ Agricultural Real Estate Residential Real Estate Consumer Unallocated Total
Three months ended June 30, 2019
Allowance for loan losses:

Balance, beginning of period $ 21,947
$ 2,412
$ 1,341
$ 1,004
$ —
26,704
Provision charged to expense (1,042 ) 545
370
218
—
91
Losses charged off (258 ) —
(67 ) (217 ) —
(542 )
Recoveries 16
—
5
85
—
106
Balance, end of period $ 20,663
$ 2,957
$ 1,649
$ 1,090
$ —
$ 26,359
Ending balance:

Individually evaluated for impairment $ 981
$ —
$ 504
$ 2
$ —
1,487
Collectively evaluated for impairment $ 18,899
$ 2,957
$ 1,138
$ 1,088
$ —
$ 24,082
Acquired with deteriorated credit quality $ 783
$ —
$ 7
$ —
$ —
$ 790

Commercial/ Commercial Real Estate Agricultural/ Agricultural Real Estate Residential Real Estate Consumer Unallocated Total
Three months ended June 30, 2018

Allowance for loan losses:

Balance, beginning of period $ 17,368
$ 1,581
$ 961
$ 861
$ —
$ 20,771
Provision charged to expense 1,334
319
92
132
—
1,877
Losses charged off (536 ) —
(55 ) (128 ) —
(719 )
Recoveries —
—
53
63
—
116
Balance, end of period $ 18,166
$ 1,900
$ 1,051
$ 928
$ —
$ 22,045
Ending balance:

Individually evaluated for impairment $ 493
$ 30
$ 19
$ —
$ —
$ 542
Collectively evaluated for impairment 17,673
1,870
1,032
928
—
21,503
Acquired with deteriorated credit quality —
—
—
—
—
—
Commercial/ Commercial Real Estate Agricultural/ Agricultural Real Estate Residential Real Estate Consumer Unallocated Total
Six months ended June 30, 2019
Allowance for loan losses:
Balance, beginning of year $ 21,556
$ 2,197
$ 1,504
$ 932
$ —
$ 26,189
Provision charged to expense (458 ) 781
254
461
—
1,038
Losses charged off (473 ) (30 ) (119 ) (488 ) —
(1,110 )
Recoveries 38
9
10
185
—
242
Balance, end of period $ 20,663
$ 2,957
$ 1,649
$ 1,090
$ —
$ 26,359
Ending balance:

Individually evaluated for impairment $ 981
$ —
$ 504
$ 2
$ —
$ 1,487
Collectively evaluated for impairment 18,899
2,957
1,138
1,088
—
24,082
Acquired with deteriorated credit quality 783
—
7
—
—
790
Loans:

Individually evaluated for impairment $ 11,253
$ 103
$ 3,186
$ 166
$ —
$ 14,708
Collectively evaluated for impairment 1,717,655
347,611
365,253
92,326
—
2,522,845
Acquired with deteriorated credit quality 7,186
—
1,804
—
—
8,990
Ending balance $ 1,736,094
$ 347,714
$ 370,243
$ 92,492
$ —
$ 2,546,543



	Construction & Land Development			Agricultural Real Estate		1-4 Family Residential Properties			Commercial Real Estate			Agricultural Loans		Commercial & Industrial		Consumer Loans		Total
Three months ended March 31, 2019
Beginning Balance (prior to adoption of ASU 2016-13)	$	561		$	1,246	$	1,504		$	11,102		$	951	$	9,893	$	932	$	26,189
Provision for credit loss expense	(9		)	36		(41		)	(481		)	188		1,013		241		947
Loans charged off	—			—		130			56			9		104		269		568
Recoveries collected	—			—		8			—			—		28		100		136
Ending balance	$	552		$	1,282	$	1,341		$	10,565		$	1,130	$	10,830	$	1,004	$	26,704

Commercial/ Commercial Real Estate Agricultural/ Agricultural Real Estate Residential Real Estate Consumer Unallocated Total
Six months ended June 30, 2018
Allowance for loan losses:
Balance, beginning of year $ 16,546
$ 1,742
$ 886
$ 803
$ —
$ 19,977
Provision charged to expense 2,270
158
269
235
—
2,932
Losses charged off (773 ) —
(158 ) (264 ) —
(1,195 )
Recoveries 123
—
54
154
—
331
Balance, end of period $ 18,166
$ 1,900
$ 1,051
$ 928
$ —
$ 22,045
Ending balance:

Individually evaluated for impairment $ 493
$ 30
$ 19
$ —
$ —
$ 542
Collectively evaluated for impairment 17,673
1,870
1,032
928
—
21,503
Acquired with deteriorated credit quality —
—
—
—
—
—
Loans:

Individually evaluated for impairment $ 12,163
$ 150
$ 2,743
$ 153
$ —
$ 15,209
Collectively evaluated for impairment 1,593,116
294,768
383,791
73,773
—
2,345,448
Acquired with deteriorated credit quality 12,300
238
3,482
6
—
16,026
Ending balance $ 1,617,579
$ 295,156
$ 390,016
$ 73,932
$ —
$ 2,376,683
Year ended December 31, 2018

Allowance for loan losses:

Balance, beginning of year $ 16,546
$ 1,742
$ 886
$ 803
$ —
$ 19,977
Provision charged to expense 6,070
548
1,447
602
—
8,667
Losses charged off (1,227 ) (93 ) (886 ) (787 ) —
(2,993 )
Recoveries 167
—
57
314
—
538
Balance, end of year $ 21,556
$ 2,197
$ 1,504
$ 932
$ —
$ 26,189
Ending balance:

Individually evaluated for impairment $ 1,816
$ —
$ 225
$ 3
$ —
$ 2,044
Collectively evaluated for impairment 18,514
2,197
1,270
929
—
22,910
Acquired with deteriorated credit quality 1,226
—
9
—
—
1,235
Loans:

Individually evaluated for impairment $ 14,422
$ 32
$ 2,360
$ 166
$ —
$ 16,980
Collectively evaluated for impairment 1,756,908
367,175
387,961
99,872
—
2,611,916
Acquired with deteriorated credit quality 13,411
4
2,205
3
—
15,623
Ending balance $ 1,784,741
$ 367,211
$ 392,526
$ 100,041
$ —
$ 2,644,519



	Construction & Land Development		Agricultural Real Estate			1-4 Family Residential Properties		Commercial Real Estate		Agricultural Loans		Commercial & Industrial		Consumer Loans		Total
Twelve months ended December 31, 2019
Beginning Balance (prior to adoption of ASU 2016-13)	$	561	$	1,246		$	1,504	$	11,102	$	951	$	9,893	$	932	$	26,189
Provision for credit loss expense	585		(153		)	1,268		1,827		459		1,053		1,394		6,433
Loans charged off	—		—			1,477		1,743		24		1,828		1,254		6,326
Recoveries collected	—		—			91		12		—		155		357		615
Ending balance	$	1,146	$	1,093		$	1,386	$	11,198	$	1,386	$	9,273	$	1,429	$	26,911

Consistent with regulatory guidance, charge-offs on all loan segments are taken when specific loans, or portions thereof, are considered uncollectible. The Company’s policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined.

For all loan portfolio segments except 1-4 family residential properties and consumer, the Company promptly charges-off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

The Company charges-off 1-4 family residential and consumer loans, or portions thereof, when the Company reasonably determines the amount of the loss. The Company adheres to timeframes established by applicable regulatory guidance which provides for the charge-down of 1-4 family first and junior lien mortgages to the net realizable value less costs to sell when the loan is 180 days past due, charge-off of unsecured open-end loans when the loan is 180 days past due, and charge down to the net realizable value when other secured loans are 120 days past due. Loans at these respective delinquency thresholds for which the Company can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged off.

The following table presents the amortized cost basis of collateral-dependent loans by class of loans that were individually evaluated to determine expected credit losses, and the related allowance for credit losses, as of March 31, 2020 (in thousands):



	Collateral								Allowance for Credit Losses
	Real Estate		Business Assets		Other		Total		Allowance for Credit Losses
Construction and land development	$	540	$	—	$	—	$	540	$	269
Agricultural real estate	150		—		—		150		—
1-4 Family residential properties	3,875		—		—		3,875		203
Multifamily residential properties	3,060		—		—		3,060		17
Commercial real estate	6,494		—		—		6,494		1,029
Loans secured by real estate	14,119		—		—		14,119		1,518
Agricultural loans	239		40		—		279		—
Commercial and industrial loans	327		3,788		19		4,134		312
Consumer loans	—		—		11		11		1
Total loans	$	14,685	$	3,828	$	30	$	18,543	$	1,831

Credit Quality

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, collateral support, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a continuous basis. The Company uses the following definitions for risk ratings which are commensurate with a loan considered “criticized”:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current sound-worthiness and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing factors, conditions and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered pass rated loans.

2624

The following tables present the credit risk profile of the Company’s loan portfolio based on risk rating category and ~~payment activity~~year of origination as of ~~June 30, 2019 and~~ ~~December~~March 31, ~~2018~~2020 (in thousands):


	Construction & Land Development				Agricultural Real Estate				1-4 Family Residential Properties				Multifamily Residential Properties
	2019		2018		2019		2018		2019		2018		2019		2018
Risk Rating																		2020		2019		2018		2017				2016		Prior		Revolving Loans		Total
March 31, 2020
Construction & Land Development Loans																	Construction & Land Development Loans
Pass	$	56,274	$	49,794	$	217,643	$	221,047	$	334,059	$	352,583	$	150,014	$	163,845		$	47,279	$	57,767	$	4,912	$	2,931			$	604	$	6,722	$	—	$	120,215
Special Mention	459		471		10,481		7,805		5,518		5,526		7,792		8,144			—		309		1,796		—				393		15		—		2,513
Substandard	336		354		1,800		2,848		15,566		15,409		9,903		12,062			—		—		—		540				—		58		—		598
Doubtful	—		—		—		—		—		—		—		—
Total	$	57,069	$	50,619	$	229,924	$	231,700	$	355,143	$	373,518	$	167,709	$	184,051		$	47,279	$	58,076	$	6,708	$	3,471			$	997	$	6,795	$	—	$	123,326
Agricultural Real Estate Loans																	Agricultural Real Estate Loans
Pass																		$	12,868	$	44,321	$	48,157	$	20,904			$	16,689	$	87,879	$	—	$	230,818
Special Mention																		275		3,008		2,512		—				1,088		3,444		—		10,327
Substandard																		—		150		859		197				31		509		—		1,746
Total																		$	13,143	$	47,479	$	51,528	$	21,101			$	17,808	$	91,832	$	—	$	242,891
1-4 Family Residential Property Loans																	1-4 Family Residential Property Loans
Pass																		$	9,125	$	32,088	$	33,208	$	28,598			$	29,270	$	128,255	$	44,251	$	304,795
Watch																		154		335		325		1,055				254		1,929		256		4,308
Substandard																		56		374		2,075		2,091				2,053		8,138		1,238		16,025
Total																		$	9,335	$	32,797	$	35,608	$	31,744			$	31,577	$	138,322	$	45,745	$	325,128
Commercial Real Estate Loans																	Commercial Real Estate Loans
Pass																		$	49,604	$	208,865	$	178,757	$	208,454			$	179,026	$	271,285	$	—	$	1,095,991
Special Mention																		61		24		2,857		1,795				4,912		4,109		—		13,758
Substandard																		1,257		127		1,406		4,287				4,573		21,203		—		32,853
Total																		$	50,922	$	209,016	$	183,020	$	214,536			$	188,511	$	296,597	$	—	$	1,142,602
Agricultural Loans																	Agricultural Loans
Pass																		$	32,007	$	79,071	$	11,469	$	3,914			$	1,732	$	4,780	$	—	$	132,973
Special Mention																		838		3,320		364		—				81		274		—		4,877
Substandard																		232		205		213		513				—		123		—		1,286
Total																		$	33,077	$	82,596	$	12,046	$	4,427			$	1,813	$	5,177	$	—	$	139,136
Commercial & Industrial Loans																	Commercial & Industrial Loans
Pass																		$	83,001	$	165,672	$	113,733	$	92,434			$	52,819	$	131,520	$	—	$	639,179
Special Mention																		10		33,495		257		241				2,054		4,984		—		41,041
Substandard																		329		2,339		463		1,475				430		3,855		—		8,891
Total																		$	83,340	$	201,506	$	114,453	$	94,150			$	55,303	$	140,359	$	—	$	689,111
Consumer Loans																	Consumer Loans
Pass																		$	8,211	$	31,924	$	20,386	$	12,441			$	5,878	$	2,236	$	—	$	81,076
Special Mention																		27		68		50		10				57		22		—		234
Substandard																		—		47		184		185				179		199		—		794
Total																		$	8,238	$	32,039	$	20,620	$	12,636			$	6,114	$	2,457	$	—	$	82,104
Total Loans																	Total Loans
Pass																		$	242,095	$	619,708	$	410,622	$	369,676	$	—	$	286,018	$	632,677	$	44,251	$	2,605,047
Special Mention																		1,365		40,559		8,161		3,101				8,839		14,777		256		77,058
Substandard																		1,874		3,242		5,200		9,288				7,266		34,085		1,238		62,193
Total																		$	245,334	$	663,509	$	423,983	$	382,065			$	302,123	$	681,539	$	45,745	$	2,744,298

Commercial Real Estate (Nonfarm/Nonresidential) Agricultural Loans Commercial & Industrial Loans Consumer Loans
2019 2018 2019 2018 2019 2018 2019 2018
Pass $ 849,840
$ 861,086
$ 108,270
$ 127,863
$ 514,790
$ 535,186
$ 83,485
$ 90,133
Special Mention 12,665
16,035
4,964
7,581
6,055
9,967
145
177
Substandard 26,206
29,729
4,982
433
9,560
11,858
1,277
1,206
Doubtful —
—
—
—
—
—
—
—
Total $ 888,711
$ 906,850
$ 118,216
$ 135,877
$ 530,405
$ 557,011
$ 84,907
$ 91,516

All Other Loans Total Loans
2019 2018 2019 2018
Pass $ 111,827
$ 110,352
$ 2,426,202
$ 2,511,889
Special Mention 2,632
3,010
50,711
58,716
Substandard —
15
69,630
73,914
Doubtful —
—
—
—
Total $ 114,459
$ 113,377
$ 2,546,543
$ 2,644,519

2725

The following tables present the credit risk profile of the Company’s loan portfolio based on risk rating category and year of origination as of December 31, 2019 (in thousands):



December 31, 2019	Pass		Special Mention		Substandard		Total
Construction & land development	$	93,413	$	413	$	316	$	94,142
Agricultural real estate	231,227		6,902		2,112		240,241
1-4 Family residential property loans	314,999		5,743		15,685		336,427
Commercial real estate	1,103,543		14,156		31,951		1,149,650
Loans secured by real estate	1,743,182		27,214		50,064		1,820,460
Agricultural loans	129,811		3,862		2,451		136,124
Commercial & industrial loans	603,047		40,395		12,138		655,580
Consumer loans	82,117		140		926		83,183
Total loans	$	2,558,157	$	71,611	$	65,579	$	2,695,347

The following table presents the Company’s loan portfolio aging analysis at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):



	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days & Accruing
March 31, 2020
Construction and land development	$	—	$	—	$	—	$	—	$	123,326	$	123,326	$	—
Agricultural real estate	841		476		213		1,530		241,361		242,891		—
1-4 Family residential properties	5,617		1,526		2,148		9,291		315,837		325,128		—
Multifamily residential properties	—		875		—		875		138,859		139,734		—
Commercial real estate	15,443		129		3,163		18,735		984,133		1,002,868		—
Loans secured by real estate	21,901		3,006		5,524		30,431		1,803,516		1,833,947		—
Agricultural loans	407		100		11		518		138,618		139,136		—
Commercial and industrial loans	1,631		562		5,358		7,551		558,238		565,789		—
Consumer loans	472		99		126		697		81,407		82,104		—
All other loans	—		—		—		—		123,322		123,322		—
Total loans	$	24,411	$	3,767	$	11,019	$	39,197	$	2,705,101	$	2,744,298	$	—
December 31, 2019
Construction and land development	$	235	$	—	$	—	$	235	$	93,907	$	94,142	$	—
Agricultural real estate	1,595		—		47		1,642		238,599		240,241		—
1-4 Family residential properties	3,834		2,288		4,713		10,835		325,592		336,427		—
Multifamily residential properties	1,348		46		1,131		2,525		151,423		153,948		—
Commercial real estate	602		495		2,241		3,338		992,364		995,702		—
Loans secured by real estate	7,614		2,829		8,132		18,575		1,801,885		1,820,460		—
Agricultural loans	300		—		307		607		135,517		136,124		—
Commercial and industrial loans	767		855		5,989		7,611		521,362		528,973		—
Consumer loans	454		196		150		800		82,383		83,183		—
All other loans	—		—		—		—		126,607		126,607		—
Total loans	$	9,135	$	3,880	$	14,578	$	27,593	$	2,667,754	$	2,695,347	$	—

30-59 Days Past Due 60-89 Days Past Due
90 Days
or More Past Due

Total
Past Due
Current Total Loans Receivable Total Loans > 90 Days & Accruing
June 30, 2019
Construction and land development $ 482
$ —
$ —
$ 482
$ 56,587
$ 57,069
$ —
Agricultural real estate —
205
47
252
229,672
229,924
—
1-4 Family residential properties 4,916
1,860
4,459
11,235
343,908
355,143
—
Multifamily residential properties 3,604
—
1,748
5,352
162,357
167,709
—
Commercial real estate 2,021
361
4,245
6,627
882,084
888,711
—
Loans secured by real estate 11,023
2,426
10,499
23,948
1,674,608
1,698,556
—
Agricultural loans 903
—
70
973
117,243
118,216
—
Commercial and industrial loans 522
307
3,446
4,275
526,130
530,405
—
Consumer loans 584
218
276
1,078
83,829
84,907
—
All other loans —
—
—
—
114,459
114,459
—
Total loans $ 13,032
$ 2,951
$ 14,291
$ 30,274
$ 2,516,269
$ 2,546,543
$ —
December 31, 2018

Construction and land development $ 460
$ 43
$ —
$ 503
$ 50,116
$ 50,619
$ —
Agricultural real estate —
804
—
804
230,896
231,700
—
1-4 Family residential properties 3,347
3,051
4,080
10,478
363,040
373,518
—
Multifamily residential properties 1,149
—
1,955
3,104
180,947
184,051
—
Commercial real estate 1,349
89
4,058
5,496
901,354
906,850
—
Loans secured by real estate 6,305
3,987
10,093
20,385
1,726,353
1,746,738
—
Agricultural loans 63
—
20
83
135,794
135,877
—
Commercial and industrial loans 1,417
10
3,902
5,329
551,682
557,011
—
Consumer loans 888
356
299
1,543
89,973
91,516
—
All other loans 697
—
—
697
112,680
113,377
—
Total loans $ 9,370
$ 4,353
$ 14,314
$ 28,037
$ 2,616,482
$ 2,644,519
$ —
26

Impaired Loans

Within all loan portfolio segments, loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified due date. Impaired loans, excluding certain troubled debt restructured loans, are placed on nonaccrual status. Impaired loans include nonaccrual loans and loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. It is the Company’s policy to have any restructured loans which are on nonaccrual status prior to being modified remain on nonaccrual status until, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. If the restructured loan is on accrual status prior to being modified, the loan is reviewed to determine if the modified loan should remain on accrual status.

The Company’s policy is to discontinue the accrual of interest income on all loans for which principal or interest is ninety days past due. The accrual of interest is discontinued earlier when, in the opinion of management, there is reasonable doubt as to the timely collection of interest or principal. Once interest accruals are discontinued, accrued but uncollected interest is charged against current year income. Subsequent receipts on non-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Interest on loans determined to be troubled debt restructurings is recognized on an accrual basis in accordance with the restructured terms if the loan is in compliance with the modified terms. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. The Company requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status.

The following tables present impaired loans as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):


	June 30, 2019						December 31, 2018						March 31, 2020						December 31, 2019
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Recorded Balance		Unpaid Principal Balance		Specific Allowance		Recorded Balance		Unpaid Principal Balance		Specific Allowance		Recorded Balance		Unpaid Principal Balance		Specific Allowance
Loans with a specific allowance:
Construction and land development	$	270	$	270	$	—	$	2,559	$	2,559	$	14	$	540	$	540	$	269	$	256	$	256	$	—
Agricultural real estate	—		—		—		—		—		—		150		150		—		—		—		—
1-4 Family residential properties	4,990		5,061		511		4,565		4,952		234		5,449		5,668		203		5,154		5,351		182
Multifamily residential properties	2,567		2,567		—		4,465		4,465		—		3,133		3,133		17		4,254		4,254		19
Commercial real estate	9,687		10,070		1,180		12,517		12,804		1,553		6,494		6,998		1,029		5,904		6,408		587
Loans secured by real estate	17,514		17,968		1,691		24,106		24,780		1,801		15,766		16,489		1,518		15,568		16,269		788
Agricultural loans	104		688		—		36		504		—		279		852		—		85		669		8
Commercial and industrial loans	5,914		6,236		584		8,292		8,723		1,475		4,205		6,182		312		7,653		8,789		301
Consumer loans	166		166		2		169		171		3		139		139		1		134		134		1
Total loans	$	23,698	$	25,058	$	2,277	$	32,603	$	34,178	$	3,279	$	20,389	$	23,662	$	1,831	$	23,440	$	25,861	$	1,098
Loans without a specific allowance:
Construction and land development	$	46	$	46	$	—	$	48	$	48	$	—	$	39	$	39	$	—	$	41	$	41	$	—
Agricultural real estate	291		291		—		309		309		—		419		419		—		479		479		—
1-4 Family residential properties	3,893		4,108		—		3,680		4,769		—		3,333		4,001		—		3,719		4,263		—
Multifamily residential properties	130		130		—		7,597		7,597		—		44		44		—		—		—		—
Commercial real estate	1,538		1,394		—		983		1,201		—		1,463		1,540		—		1,721		1,724		—
Loans secured by real estate	5,898		5,969		—		12,617		13,924		—		5,298		6,043		—		5,960		6,507		—
Agricultural loans	734		150		—		631		163		—		583		10		—		724		140		—
Commercial and industrial loans	741		2,310		—		1,660		2,027		—		914		3,076		—		916		3,065		—
Consumer loans	534		731		—		471		1,006		—		357		784		—		391		713		—
All other loans	—		—		—		6		6		—
Total loans	$	7,907	$	9,160	$	—	$	15,385	$	17,126	$	—	$	7,152	$	9,913	$	—	$	7,991	$	10,425	$	—
Total loans:
Construction and land development	$	316	$	316	$	—	$	2,607	$	2,607	$	14	$	579	$	579	$	269	$	297	$	297	$	—
Agricultural real estate	291		291		—		309		309		—		569		569		—		479		479		—
1-4 Family residential properties	8,883		9,169		511		8,245		9,721		234		8,782		9,669		203		8,873		9,614		182
Multifamily residential properties	2,697		2,697		—		12,062		12,062		—		3,177		3,177		17		4,254		4,254		19
Commercial real estate	11,225		11,464		1,180		13,500		14,005		1,553		7,957		8,538		1,029		7,625		8,132		587
Loans secured by real estate	23,412		23,937		1,691		36,723		38,704		1,801		21,064		22,532		1,518		21,528		22,776		788
Agricultural loans	838		838		—		667		667		—		862		862		—		809		809		8
Commercial and industrial loans	6,655		8,546		584		9,952		10,750		1,475		5,119		9,258		312		8,569		11,854		301
Consumer loans	700		897		2		640		1,177		3		496		923		1		525		847		1
All other loans	—		—		—		6		6		—
Total loans	$	31,605	$	34,218	$	2,277	$	47,988	$	51,304	$	3,279	$	27,541	$	33,575	$	1,831	$	31,431	$	36,286	$	1,098

2928

The following tables present average recorded investment and interest income recognized on impaired loans for the three ~~and six~~-month periods ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands):

For the three months ended
June 30, 2019 June 30, 2018

Average Investment
in Impaired Loans
Interest Income Recognized
Average Investment
in Impaired Loans
Interest Income Recognized
Construction and land development $ 629
$ 8
$ 44
$ —
Agricultural real estate 956
—
235
—
1-4 Family residential properties 9,543
26
6,719
22
Multifamily residential properties 4,522
32
301
—
Commercial real estate 14,414
82
8,675
3
Loans secured by real estate 30,064
148
15,974
25
Agricultural loans 823
1
1,109
—
Commercial and industrial loans 9,929
1
7,672
—
Consumer loans 742
—
329
—
All other loans —
—
21
—
Total loans $ 41,558
$ 150
$ 25,105
$ 25


	For the six months ended								For the three months ended
	June 30, 2019				June 30, 2018				March 31, 2020				March 31, 2019
	Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
Construction and land development	$	632	$	16	$	44	$	—	$	600	$	8	$	813	$	—
Agricultural real estate	957		—		235		—		1,202		—		1,239		—
1-4 Family residential properties	9,973		51		6,777		28		8,997		18		8,690		23
Multifamily residential properties	4,804		61		302		—		3,323		1		1,718		—
Commercial real estate	14,844		160		8,680		6		8,266		42		10,359		6
Loans secured by real estate	31,210		288		16,038		34		22,388		69		22,819		29
Agricultural loans	773		1		1,061		—		960		—		664		—
Commercial and industrial loans	10,059		2		7,892		2		7,402		2		6,698		1
Consumer loans	781		—		349		—		544		—		744		—
All other loans	—		—		21		—		—		—		—		—
Total loans	$	42,823	$	291	$	25,361	$	36	$	31,294	$	71	$	30,925	$	30

The amount of interest income recognized by the Company within the periods stated above was due to loans modified in troubled debt restructurings that ~~remained~~remain on accrual status. The ~~balance~~average balances of loans ~~modified in troubled debt restructurings~~ included in ~~the~~ impaired loans at ~~June 30,~~March 31, 2020 and 2019, ~~stated above that~~ were ~~still accruing was $1,595,000 of 1-4 Family residential properties, $1,050,000 of commercial real estate, $70,000 of commercial~~$2.7 million and industrial, $59,000 of agricultural loans, and $5,000 of consumer. The balance of loans modified in a troubled debt restructurings at June 30, 2018 included in the impaired loans stated above that were still accruing was $2,396,000 of 1-4 family residential properties and $683,000 consumer loans. For the six months ended June 30, 2019 and 2018, the amount of interest income recognized using a cash-basis method of accounting during the period that the loans were impaired was not material.2.1 million, respectively.

Non Accrual Loans

The following table presents the ~~Company’s recorded balance~~amortized cost basis of loans on nonaccrual status and of nonaccrual loans individually evaluated for which no allowance was recorded as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands). ~~This table excludes performing troubled debt restructurings and purchased impaired loans.~~There were no loans past due over eighty-nine days that were still accruing.


					March 31, 2020				December 31, 2019
	June 30, 2019		December 31, 2018		Nonaccrual with no Allowance for Credit Loss		Nonaccrual		Nonaccrual
Construction and land development	$	46	$	377	$	—	$	39	$	41
Agricultural real estate	291		309		150		569		479
1-4 Family residential properties	7,150		5,762		3,478		7,416		7,379
Multifamily residential properties	1,574		2,105		2,260		3,104		3,137
Commercial real estate	5,876		8,457		1,273		4,351		4,351
Loans secured by real estate	14,937		17,010		7,161		15,479		15,387
Agricultural loans	778		667		812		822		769
Commercial and industrial loans	6,584		8,990		3,824		4,994		8,441
Consumer loans	695		625		125		492		521
All other loans	—		6
Total loans	$	22,994	$	27,298	$	11,922	$	21,787	$	25,118

Interest income that would have been recorded under the original terms of such nonaccrual loans totaled $~~1,335,000~~1,029,000 and $~~758,000~~1,097,000 for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~, respectively.

~~Purchased Credit-Impaired~~

Acquired Loans

The Company acquired certain loans considered to be credit-impaired ("PCI") in its business combinations ~~with First Clover Leaf Bank during~~prior to the ~~third quarter~~adoption of ~~2016, First Bank & Trust during the second quarter of 2018, and SCB during the fourth quarter of 2018.~~ASU 2016-13. At acquisition, these loans evidenced deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of these loans iswas included in the consolidated balance sheet amounts for Loans. The ~~Company had no PCI loans prior to the First Clover Leaf Bank acquisition. The~~ amount of these loans at ~~June 30, 2019 and~~ December 31, ~~2018 are~~2019 was as follows (in thousands):


	June 30, 2019			December 31, 2018			December 31, 2019
Construction and land development	$	270		$	2,558		$	256
Agricultural real estate	—			—			—
1-4 Family residential properties	1,804			2,206			371
Multifamily residential properties	2,294			3,891			2,077
Commercial real estate	4,622			6,946			2,247
Loans secured by real estate	8,990			15,601			4,951
Agricultural loans	—			4			—
Commercial and industrial loans	—			15			—
Consumer loans	—			3			—
Carrying amount	8,990			15,623			4,951
Allowance for loan losses	(790		)	(1,235		)	(365		)
Carrying amount, net of allowance	$	8,200		$	14,388		$	4,586

For PCI loans, the difference between contractually required payments at acquisition and the cash flow expected to be collected is referred to as the non-accretable difference. Any excess of expected cash flows over the fair value is referred to as the accretable yield. Subsequent decreases to the expected cash flows ~~will~~ result in a provision for loan and lease losses. Subsequent increases in expected cash flows ~~will~~ result in a reversal of the provision for loan and lease losses to the extent of prior charges and then an adjustment to accretable yield, which ~~would have~~had a positive impact on interest income. As of ~~June 30, 2019, there were five loans with a change in expected cash flows and as a result, approximately $790,000 of provision~~

~~was recorded net of approximately $697,000 of provision reversed. As of~~ December 31, ~~2018,~~2019, subsequent changes in expected cash flows resulted in approximately ~~$1,235,000~~$365,000 of provision recorded and approximately ~~$65,000~~$1,229,000 of provision reversed.

Subsequent to adoption of ASU 2016-13 on January 1, 2020, loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered PCD loans. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. This initial allowance for credit losses is allocated to individual PCD loans and added to the purchase price or acquisition date fair values to establish the initial amortized cost basis of the PCD loans. As the initial allowance for credit losses is added to the purchase price, there is no credit loss expense recognized upon acquisition of a PCD loan. Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to noncredit factors and results in a discount or premium. Discounts and premiums are recognized through interest income on a level-yield method over the life of the loans. All loans considered to be PCI prior to January 1, 2020 were converted to PCD on that date.

Troubled Debt Restructuring

The balance of troubled debt restructurings ("TDRs") at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 was $~~7.6~~5.6 million and $~~10.0~~5.8 million, respectively. There was ~~$834,000~~$528,000 and ~~$1,418,000~~$381,000 in specific reserves established with respect to these loans as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019, respectively. As troubled debt restructurings, these loans are included in nonperforming loans and are classified as impaired which requires that they be individually measured for impairment. The modification of the terms of these loans included one or a combination of the following: a reduction of stated interest rate of the loan; an extension of the maturity date and change in payment terms; or a permanent reduction of the recorded investment in the loan.

The following table presents the Company’s recorded balance of troubled debt restructurings at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands).


Troubled debt restructurings:	June 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
1-4 Family residential properties	$	2,207	$	2,472	$	1,882	$	1,905
Commercial real estate	2,505		1,706		2,008		1,746
Loans secured by real estate	4,712		4,178		3,890		3,651
Agricultural loans	688		499		553		669
Commercial and industrial loans	2,029		5,112		1,017		1,349
Consumer loans	166		167		139		134
Total	$	7,595	$	9,956	$	5,599	$	5,803
Performing troubled debt restructurings:
1-4 Family residential properties	$	1,595	$	1,769	$	1,366	$	1,382
Commercial real estate	1,050		676		1,140		1,146
Loans secured by real estate	2,645		2,445		2,506		2,528
Agricultural Loans	59		—		41		40
Commercial and industrial loans	70		—		125		128
Consumer loans	5		6		4		5
Total	$	2,779	$	2,451	$	2,676	$	2,701

The following table presents loans modified as TDRs during the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~, as a result of various modified loan factors (in thousands):. The change in the recorded investment from pre-modification to post-modification was not material.


	June 30, 2019				June 30, 2018				March 31, 2020				March 31, 2019
	Number of Modifications	Recorded Investment		Type of Modifications	Number of Modifications	Recorded Investment		Type of Modifications	Number of Modifications	Recorded Investment		Type of Modifications	Number of Modifications	Recorded Investment		Type of Modifications
1-4 Family residential properties	1	$	46	(b)(c)	1	$	161	(b)	—	$	—		1	$	46	(b)(c)
Commercial real estate	3	1,533		(b)(c)(d)	—	—			1	305		(b)	1	483		(b)(c)
Loans secured by real estate	4	1,579			1	161			1	305			2	529
Agricultural loans	1	59		(b)	—	—
Commercial and industrial loans	2	70		(b)(c)(d)					1	7		(b)	2	72		(b)(c)
Consumer Loans	1	12		(c)	—	—			1	11		(b)	1	14		(b)(c)
Total	8	$	1,720		1	$	161		3	$	323		5	$	615

Type of modifications:

(a) Reduction of stated interest rate of loan

(b) Change in payment terms

(d) Permanent reduction of the recorded investment

A loan is considered to be in payment default once it is 90 days past due under the modified terms. There were no loans modified as troubled debt restructurings during the prior twelve months that experienced defaults for ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. There ~~was one loan~~were no loans modified as troubled debt restructuring during the prior twelve months that experienced defaults as of December 31, ~~2018.~~2019.

The balance of real estate owned includes ~~$3,569,000~~$2,784,000 and ~~$2,534,000~~$3,644,000 of foreclosed real estate properties recorded as a result of obtaining physical possession of the property at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure procedures are in process was ~~$2,063,000~~$1,190,000 and ~~$425,000~~$667,000 at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

Note 5 -- Goodwill and Intangible Assets

The Company has goodwill from business combinations, intangible assets from branch acquisitions, identifiable intangible assets assigned to core deposit relationships and customer lists of First Mid Insurance. The following table presents gross carrying value and accumulated amortization by major intangible asset class as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):


	June 30, 2019				December 31, 2018				March 31, 2020				December 31, 2019
	Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization
Goodwill not subject to amortization (effective 1/1/02)	$	108,735	$	3,760	$	109,037	$	3,760	$	108,752	$	3,760	$	108,752	$	3,760
Intangibles from branch acquisition	3,015		3,015		3,015		3,015		3,015		3,015		3,015		3,015
Core deposit intangibles	32,355		15,950		32,355		14,017		32,355		18,589		32,355		17,746
Other intangibles	16,029		3,283		16,029		2,648		16,389		4,244		16,129		3,917
	$	160,134	$	26,008	$	160,436	$	23,440	$	160,511	$	29,608	$	160,251	$	28,438

~~Goodwill of $26.5 million was recorded for the acquisition and merger of First Bank during 2018. All of the goodwill was assigned to the banking segment of the Company.~~ The Company expects this goodwill will not be deductible for tax purposes. The following table provides a reconciliation of the purchase price paid for the acquisition of First Bank and the amount of goodwill recorded (in thousands):

Purchase price (in excess of net book value) $ 26,946
Purchase accounting adjustments:
     Fair value of securities $ 320

     Fair value of loans, net 3,463

     Fair value of OREO 12

     Fair value of mortgage servicing rights (1,097 )
     Fair value of premises and equipment 689

     Fair value of time deposits 1,301

     Fair value of FHLB advances (328 )
     Fair value of subordinated debentures (1,451 )
     Core deposit intangible (5,224 )
     Other assets and other liabilities, net 1,860

(455 )
Resulting goodwill from acquisition $ 26,491

Goodwill of $18.6 million was provisionally recorded for the acquisition and merger of SCB during the fourth quarter of 2018. All of the goodwill was assigned to the banking segment of the Company. Goodwill was subsequently adjusted to $18.3 million to reflect proper valuation of financial assets and liabilities. The Company expects this goodwill will not be deductible for tax purposes.

~~The following table provides a reconciliation of the purchase price paid for the acquisition of SCB and the amount of goodwill recorded (in thousands):~~

Purchase price (in excess of net book value) $ 21,677
Purchase accounting adjustments:
     Fair value of securities $ 41

     Fair value of loans, net 3,377

     Fair value of OREO 345

     Fair value of premises and equipment (953 )
     Fair value of time deposits (343 )
     Fair value of FHLB advances (29 )
     Core deposit intangible (7,269 )
     Customer list intangible (12,298 )
     Other assets and other liabilities, net 13,786

(3,343 )
Resulting goodwill from acquisition $ 18,334

~~During 2018, as part of the First Bank and SCB acquisitions, the Company acquired~~has mortgage servicing rights ~~valued at $1,558,000. There have been no mortgage servicing rights added during 2019.~~acquired in previous acquisitions. The following table summarizes the activity pertaining to mortgage servicing rights included in intangible assets as of ~~June 30,~~March 31, 2020, March 31, 2019 ~~June 30, 2018~~ and December 31, ~~2018~~2019 (in thousands):


	June 30, 2019			June 30, 2018			December 31, 2018			March 31, 2020			March 31, 2019			December 31, 2019
Beginning Balance	$	2,101			$844		$	844		$	1,444		$	2,101		$	2,101
Mortgage servicing rights acquired during period	—			425			1,558			—			—			—
Mortgage servicing rights capitalized	—			7			7			—			—			—
Valuation reserve	(439		)	—			—			(18		)	—			(380		)
Mortgage servicing rights amortized	(172		)	(119		)	(308		)	(126		)	(58		)	(411		)
I/O Strip	146			—			—			(4		)	—			134
Ending Balance	$	1,636			$1,157		$	2,101		$	1,296		$	2,043		$	1,444

Total amortization expense for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ was as follows (in thousands):


	Three months ended June 30,				Six months ended June 30,				Three months ended March 31,
	2019		2018		2019		2018		2020		2019
Core deposit intangibles	953		591		$	1,933	$	1,011	$	843	$	980
Customer list intangibles	317		45		635		91		326		318
Mortgage servicing rights	553		80		611		119		126		58
	$	1,823	$	716	$	3,179	$	1,221	$	1,295	$	1,356

3432

Aggregate amortization expense for the current year and estimated amortization expense for each of the five succeeding years is shown in the table below (in thousands):


Aggregate amortization expense:
For period 01/01/19-06/30/19	$	3,179
For period 01/01/20-3/31/20			$	1,295
Estimated amortization expense:
For period 07/01/19-12/31/19	2,769
For period 4/01/20-12/31/20			3,674
For year ended 12/31/20	4,836		4,285
For year ended 12/31/21	4,192		3,919
For year ended 12/31/22	3,826		3,498
For year ended 12/31/23	3,510		2,946
For year ended 12/31/24	2,910		2,633

In accordance with the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” codified within ASC 350, the Company performed testing of goodwill for impairment as of September 30, ~~2018~~2019 and determined that, as of that date, goodwill was not impaired. Management also concluded that the remaining amounts and amortization periods were appropriate for all intangible assets.

Note 6 -- Repurchase Agreements and Other Borrowings

Securities sold under agreements to repurchase were ~~$152.3~~$231.6 million at ~~June 30, 2019,~~March 31, 2020, a ~~decrease~~increase of ~~$40.0~~$23.5 million from ~~$192.3~~$208.1 million at December 31, ~~2018.~~2019. The ~~decrease~~increase during the first ~~six~~three months of ~~2019~~2020 was primarily due to ~~decreases in balances of customers due to~~ changes in business cash flow ~~needs for their businesses.~~needs. All of the transactions have overnight maturities with a weighted average rate of ~~0.52%~~0.12%.

The right of setoff for a repurchase agreement resembles a secured borrowing, whereby the collateral pledged by the Company would be used to settle the fair value of the repurchase agreement should the Company be in default (e.g., declare bankruptcy), the Company could cancel the repurchase agreement (i.e., cease payment of principal and interest), and attempt collection on the amount of collateral value in excess of the repurchase agreement fair value.

The collateral is held by a third party financial institution in the counterparty's custodial account. The counterparty has the right to sell or repledge the investment securities. For government entity repurchase agreements, the collateral is held by the Company in a segregated custodial account under a tri-party agreement. The Company is required by the counterparty to maintain adequate collateral levels. In the event the collateral fair value falls below stipulated levels, the Company will pledge additional securities. The Company closely monitors collateral levels to ensure adequate levels are maintained, while mitigating the potential of over-collateralization in the event of counterparty default.

Collateral pledged by class for repurchase agreements are as follows (in thousands):


	June 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
US Treasury securities and obligations of U.S. government corporations & agencies	$	100,099	$	130,893	$	36,437	$	77,333
Obligations of states and political subdivisions					—		2,375
Mortgage-backed securities: GSE: residential	52,165		61,437		194,144		128,401
Other Securities					1,068		—
Total	$	152,264	$	192,330	$	231,649	$	208,109

3533

FHLB borrowings were ~~$96~~$120 million and ~~$120~~$114 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. At ~~June 30, 2019~~March 31, 2020 the advances were as follows:

~~$10 million advance with a 11-month maturity at 2.81%, due August 30, 2019~~

~~$5 million advance with a 15-month maturity, at 2.63%, due September 27, 2019~~

~~$2 million advance with a 5-year maturity, at 1.89%, due October 17, 2019~~

~~$10 million advance with a 14-month maturity at 2.88%, due November 29, 2019~~

~~$5 million advance with a 1.5-year maturity, at 2.67%, due December 27, 2019~~

~~$4 million advance with a 3-year maturity at 2.40%, due January 9, 2020~~

~~$5 million advance with a 2.5-year maturity, at 1.67%, due January 31, 2020~~

~~$5 million advance with a 4-year maturity, at 1.79%, due April 13, 2020~~

~~$10 million advance with a 1.5 year maturity at 2.95%, due May 29, 2020~~

~~$5 million advance with a 2-year maturity, at 2.75%, due June 26, 2020~~

~~$5 million advance with a 3-year maturity, at 1.75%, due July 31, 2020~~

~~$5 million advance with a 6-year maturity, at 2.30%, due August 24, 2020~~

~~$5 million advance with a 3.5-year maturity, at 1.83%, due February 1, 2021~~

~~$5 million advance with a 5-year maturity, at 1.85%, due April 12, 2021~~

~~$5 million advance with a 7-year maturity, at 2.55%, due October 1, 2021~~

~~$5 million advance with a 5-year maturity, at 2.71%, due March 21, 2022~~

~~$5 million advance with a 8-year maturity, at 2.40%, due January 9, 2023~~



Advance		Term (in years)	Interest Rate	Maturity Date
$	5,000,000	4.0	1.79%	April 13, 2020
10,000,000		1.5	2.95%	May 29, 2020
5,000,000		2.0	2.75%	June 26, 2020
5,000,000		3.0	1.75%	July 31, 2020
5,000,000		6.0	2.30%	August 24, 2020
5,000,000		3.5	1.83%	February 1, 2021
5,000,000		5.0	1.85%	April 12, 2021
5,000,000		7.0	2.55%	October 1, 2021
5,000,000		5.0	2.71%	March 21, 2022
5,000,000		8.0	2.40%	January 9, 2023
5,000,000		3.5	1.51%	July 31, 2023
5,000,000		3.5	0.77%	September 11, 2023
10,000,000		5.0	1.45%	December 31, 2024
5,000,000		5.0	0.91%	March 10, 2025
5,000,000		10.0	1.14%	October 3, 2029
5,000,000		10.0	1.15%	October 3, 2029
5,000,000		10.0	1.12%	October 3, 2029
10,000,000		10.0	1.39%	December 31, 2029
15,000,000		10.0	1.41%	December 31, 2029

Note 7 -- Fair Value of Assets and Liabilities

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:



Level 1	Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.



Level 2	Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities which use observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.



Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Following is a description of the inputs and valuation methodologies used for assets measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.

Available-for-Sale Securities. The fair value of available-for-sale securities is determined by various valuation

methodologies. Where quoted market prices are available in an active market, securities are classified within Level 1. If

quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independent sources of market parameters, including but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

Fair value determinations for Level 3 measurements of securities are the responsibility of the Treasury function of the Company. The Company contracts with a pricing specialist to generate fair value estimates on a monthly basis. The Treasury function of the Company challenges the reasonableness of the assumptions used and reviews the methodology to ensure the estimated fair value complies with accounting standards generally accepted in the United States, analyzes the changes in fair value and compares these changes to internally developed expectations and monitors these changes for appropriateness.

Derivatives. The fair value of derivatives is based on models using observable market data as of the measurement date and are therefore classified in Level 2 of the valuation hierarchy.

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):


			Fair Value Measurements Using								Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2019
March 31, 2020
Available-for-sale securities:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	193,424	$	—	$	193,424	$	—	$	56,689	$	—	$	56,689	$	—
Obligations of states and political subdivisions	186,229		—		185,259		970		163,502		—		162,712		790
Mortgage-backed securities	374,646		—		374,646		—		395,511		—		395,511		—
Other securities	3,391		190		3,201		—		2,099		146		1,953		—
Total available-for-sale securities	$	757,690	$	190	$	756,530	$	970	617,801		146		616,865		790
Derivative liability:
Interest rate swap	$	293	$	—	$	293	$	—
Derivative assets:
Interest rate swaps									1,002		—		1,002		—
									$	618,803	$	146	$	617,867	$	790
December 31, 2018
Derivative liabilities:
Interest rate swaps									$	2,710	$	—	$	2,710	$	—
December 31, 2019
Available-for-sale securities:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	198,649	$	—	$	198,649	$	—	$	107,320	$	—	$	107,320	$	—
Obligations of states and political subdivisions	192,579		—		191,612		967		178,433		—		177,460		973
Mortgage-backed securities	298,672		—		298,672		—		396,126		—		396,126		—
Other securities	2,374		364		2,010		—		4,169		219		3,950		—
Total available-for-sale securities	$	692,274	$	364	$	690,943	$	967	$	686,048	$	219	$	684,856	$	973
Derivative liabilities:
Interest rate swaps									$	325	$	—	$	325	$	—

3736

The change in fair value of assets measured on a recurring basis using significant unobservable inputs (Level 3) for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ is summarized as follows (in thousands):

Trust Preferred Securities
Three months ended Six months ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Beginning balance $ —
$ 2,522
$ —
$ 2,548
Transfers into Level 3 —
—
—
—
Transfers out of Level 3 —
—
—
—
Total gains or losses:
Included in net income —
—
—
—
Included in other comprehensive income (loss) —
—
—
18
Purchases, issuances, sales and settlements:
—

Purchases —
—
—
—
Issuances —
—
—
—
Sales —
(2,522 ) —
(2,522 )
Settlements —
—
—
(44 )
Ending balance $ —
$ —
$ —
$ —
Total gains or losses for the period included in net income attributable to the change in unrealized gains or losses related to assets and liabilities still held at the reporting date $ —
$ —
$ —
$ —


	Obligation of State and Political Subdivisions								Obligation of State and Political Subdivisions
	Three months ended				Six months ended				Three months ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018		March 31, 2020			March 31, 2019
Beginning balance	$	968	$	—	$	967	$	—	$	973		$	967
Transfers into Level 3	—		—		—		—		—			—
Transfers out of Level 3	—		—		—		—		—			—
Total gains or losses:			—				—
Included in net income	2		—		3		—		1			1
Included in other comprehensive income (loss)	—		—		—		—		—			—
Purchases, issuances, sales and settlements:
Purchases	—		—		—		—		—			—
Issuances	—		—		—		—		—			—
Sales	—		—		—		—		(184		)	—
Settlements	—		—		—		—		—			—
Ending balance	$	970	$	—	$	970	$	—	$	790		$	968
Total gains or losses for the period included in net income attributable to the change in unrealized gains or losses related to assets and liabilities still held at the reporting date	$	—	$	—	$	—	$	—	$	—		$	—

Following is a description of the valuation methodologies used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.

Impaired Loans (Collateral Dependent). Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment and estimating fair value include using the fair value of the collateral for collateral dependent loans.

If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.

Management establishes a specific allowance for impaired loans that have an estimated fair value that is below the carrying value. The total carrying amount of loans for which a change in specific allowance has occurred as of ~~June 30, 2019~~March 31, 2020 was $~~12,305,000~~11,124,000 and a fair value of $~~10,028,000~~9,514,000 resulting in specific loss exposures of $~~2,277,000~~1,610,000.

When there is little prospect of collecting principal or interest, loans, or portions of loans, may be charged-off to the allowance for loan losses. Losses are recognized in the period an obligation becomes uncollectible. The recognition of a loss does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan even though partial recovery may be affected in the future.

Foreclosed Assets Held For Sale. Other real estate owned acquired through loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. The adjustment at the time of foreclosure is recorded through the allowance for loan losses. Due to the subjective nature of establishing the fair value when the asset is acquired, the actual fair value of the other real estate owned or foreclosed asset could differ from the original estimate. If it is determined that fair value declines subsequent to foreclosure, a valuation allowance is recorded through noninterest expense. Operating costs associated with the assets after acquisition are also recorded as noninterest expense. Gains and losses on the disposition of other real estate owned and foreclosed assets are netted and posted to other noninterest expense. The total

carrying amount of other real estate owned as of ~~June 30, 2019~~March 31, 2020 was $~~3,569,000~~2,784,000. Other real estate owned included in the total carrying amount and measured at fair value on a nonrecurring basis during the period amounted to $~~1,479,000~~160,000.

Mortgage Servicing Rights. As of ~~June 30, 2019 ,~~March 31, 2020, mortgage servicing rights had a carrying value of ~~$2,075,000~~$1,564,000 and a fair value of ~~$1,636,000~~$1,296,000 resulting in a valuation reserve of ~~$439,000.~~$268,000. The fair value used to determine the valuation reserve for mortgage servicing rights was estimated using the discounted cash flow models. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the fair value hierarchy.

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):

Fair Value Measurements Using

Fair Value
Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2)
Significant
Unobservable Inputs
(Level 3)
June 30, 2019
Impaired loans (collateral dependent) $ 10,028
$ —
$ —
$ 10,028
Foreclosed assets held for sale 1,479
—
—
1,479
Mortgage servicing rights 1,636
—
—
1,636
December 31, 2018

Impaired loans (collateral dependent) $ 16,437
$ —
$ —
$ 16,437
Foreclosed assets held for sale 836
—
—
836



	Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2020
Impaired loans (collateral dependent)	$	9,514	$	—	$	—	$	9,514
Foreclosed assets held for sale	160		—		—		160
Mortgage servicing rights	1,296		—		—		1,296
December 31, 2019
Impaired loans (collateral dependent)	$	12,727	$	—	$	—	$	12,727
Foreclosed assets held for sale	935		—		—		935
Mortgage servicing rights	1,444		—		—		1,444

Sensitivity of Significant Unobservable Inputs

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements other than goodwill at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands).


June 30, 2019	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
March 31, 2020												Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired loans (collateral dependent)	$	10,028	Third party valuations	Discount to reflect realizable value	0	%	-	40%	(	20%	)	$	9,514	Third party valuations	Discount to reflect realizable value	0	%	-	40%	(	20%	)
Foreclosed assets held for sale	1,479		Third party valuations	Discount to reflect realizable value less estimated selling costs	0	%	-	40%	(	35%	)	160		Third party valuations	Discount to reflect realizable value less estimated selling costs	0	%	-	40%	(	35%	)
Mortgage servicing rights	1,636		Third party valuations	Discount to reflect realizable value	9.5	%	-	12.5%	(	9.7%	)	1,296		Third party valuations	Discount to reflect realizable value	9.0	%	-	11.0%	(	9.1%	)


December 31, 2018	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
December 31, 2019												Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired loans (collateral dependent)	$	16,437	Third party valuations	Discount to reflect realizable value	0	%	-	40%	(	20%	)	$	12,727	Third party valuations	Discount to reflect realizable value	0	%	-	40%	(	20%	)
Foreclosed assets held for sale	836		Third party valuations	Discount to reflect realizable value less estimated selling costs	0	%	-	40%	(	35%	)	935		Third party valuations	Discount to reflect realizable value less estimated selling costs	0	%	-	40%	(	35%	)
Mortgage servicing rights												1,444		Third party valuations	Discount to reflect realizable value	9.5	%	-	12.5%	(	9.7%	)

The following tables present estimated fair values of the Company’s financial instruments at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 in accordance with ASC 825 (in thousands):


	Carrying Amount		Fair Value		Level 1		Level 2		Level 3		Carrying Amount		Fair Value		Level 1		Level 2		Level 3
June 30, 2019
March 31, 2020
Financial Assets
Cash and due from banks	$	167,497	$	167,497	$	167,497	$	—	$	—	$	181,100	$	181,100	$	181,100	$	—	$	—
Federal funds sold	919		919		919		—		—		927		927		927		—		—
Certificates of deposit investments	6,585		6,585		—		6,585		—		4,380		4,380		—		4,380		—
Available-for-sale securities	757,690		757,690		190		756,530		970		617,801		617,801		146		616,865		790
Held-to-maturity securities	69,488		69,441		—		69,441		—		24,563		24,806		—		24,806		—
Loans held for sale	1,717		1,717		—		1,717		—		1,251		1,251		—		1,251		—
Loans net of allowance for loan losses	2,518,467		2,451,641		—		—		2,451,641		2,710,171		2,627,881		—		—		2,627,881
Interest receivable	15,650		15,650		—		15,650		—		15,422		15,422		—		15,422		—
Federal Reserve Bank stock	9,401		9,401		—		9,401		—		9,401		9,401		—		9,401		—
Federal Home Loan Bank stock	2,995		2,995		—		2,995		—		5,450		5,450		—		5,450		—
Financial Liabilities
Deposits	$	3,012,490	$	3,018,325	$	—	$	2,360,683	$	657,642	$	2,908,627	$	2,920,736	$	—	$	2,353,150	$	567,586
Securities sold under agreements to repurchase	152,264		152,257		—		152,257		—		231,649		231,699		—		231,699		—
Interest payable	2,416		2,416		—		2,416		—		2,029		2,029		—		2,029		—
Federal Home Loan Bank borrowings	95,826		96,503		—		96,503		—		119,921		124,463		—		124,463		—
Other borrowings											5,000		5,000		—		5,000		—
Junior subordinated debentures	29,084		24,199		—		24,199		—		18,900		14,632		—		14,632		—



December 31, 2019
Financial Assets
Cash and due from banks	$	84,154	$	84,154	$	84,154	$	—	$	—
Federal funds sold	926		926		926		—		—
Certificates of deposit investments	4,625		4,625		—		4,625		—
Available-for-sale securities	686,048		686,048		219		684,856		973
Held-to-maturity securities	69,542		69,572		—		69,572		—
Loans held for sale	1,820		1,820		—		1,820		—
Loans net of allowance for loan losses	2,666,616		2,622,053		—		—		2,622,053
Interest receivable	15,577		15,577		—		15,577		—
Federal Reserve Bank stock	9,401		9,401		—		9,401		—
Federal Home Loan Bank stock	4,105		4,105		—		4,105		—
Financial Liabilities
Deposits	$	2,917,366	$	2,924,144	$	—	$	2,332,866	$	591,278
Securities sold under agreements to repurchase	208,109		208,016		—		208,016		—
Interest payable	2,261		2,261		—		2,261		—
Federal Home Loan Bank borrowings	113,895		114,510		—		114,510		—
Other borrowings	5,000		5,000		5,000		—		—
Junior subordinated debentures	18,858		15,596		—		15,596		—

4039

Carrying
Amount

Fair
Value
Level 1 Level 2 Level 3
December 31, 2018
Financial Assets
Cash and due from banks $ 140,735
$ 140,735
$ 140,735
$ —
$ —
Federal funds sold 665
665
665
—
—
Certificates of deposit investments 7,569
7,569
—
7,569
—
Available-for-sale securities 692,274
692,274
364
690,943
967
Held-to-maturity securities 69,436
67,909
—
67,909
—
Loans held for sale 1,508
1,508
—
1,508
—
Loans net of allowance for loan losses 2,616,822
2,541,037
—
—
2,541,037
Interest receivable 16,881
16,881
—
16,881
—
Federal Reserve Bank stock 7,390
7,390
—
7,390
—
Federal Home Loan Bank stock 3,095
3,095
—
3,095
—
Financial Liabilities

Deposits $ 2,988,686
$ 2,991,177
$ —
$ 2,396,917
$ 594,260
Securities sold under agreements to repurchase 192,330
192,179
—
192,179
—
Interest payable 1,758
1,758
—
1,758
—
Federal Home Loan Bank borrowings 119,745
119,704
—
119,704
—
Other borrowings 7,724
7,724
—
7,724
—
Junior subordinated debentures 29,000
24,418
—
24,418
—

Note 8 ~~-- Business Combinations~~

~~SCB Bancorp, Inc.~~

On June 12, 2018, The Company and Project Almond Merger Sub LLC, a newly formed Illinois limited liability company and wholly-owned subsidiary of the Company (“Almond Merger Sub”), entered into an Agreement and Plan of Merger (the “SCB Merger Agreement”) with SCB Bancorp, Inc., an Illinois corporation (“SCB”), pursuant to which, among other things, the Company agreed to acquire 100% of the issued and outstanding shares of SCB pursuant to a business combination whereby SCB will merge with and into Almond Merger Sub, whereupon the separate corporate existence of SCB will cease and Merger Sub will continue as the surviving company and a wholly-owned subsidiary of the Company (the “SCB Merger”).

Soy Capital Bank and Trust Company ("Soy Capital Bank") merged with and into First Mid Bank on April 6, 2019. At the time of the bank merger, Soy Capital Bank's banking offices became branches of First Mid Bank. As a result of the acquisition, the Company will have an opportunity to increase its deposit base and reduce transaction costs. The Company also expects to reduce costs through economies of scale.

~~The acquisition was accounted for under the acquisition method of accounting in accordance with ASC 805,~~ ~~“BusinessCombinations ("ASC 805"),”~~ and accordingly the assets and liabilities were recorded at their estimated fair values as of the date of acquisition. Fair values are subject to refinement for up to one year after the closing date of November 15, 2018 as additional information regarding the closing date fair values become available. The total consideration paid was used to determine the amount of goodwill resulting from the transaction. As the total consideration paid exceeded the net assets acquired, goodwill of $18.3 million was recorded for the acquisition. Goodwill recorded in the transaction, which reflects the synergies and economies of scale expected from combining operations and the enhanced revenue opportunities from the Company’s service capabilities, is not tax deductible, and was all assigned to the banking segment of the Company.

~~The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of the SCB acquisition (in thousands).~~

Acquired
Book Value Fair Value Adjustments As Recorded by SCB
Assets
     Cash and due from banks $ 65,112
$ —
$ 65,112
     Investment Securities 97,545
(41 ) 97,504
     Loans 255,429
(7,868 ) 247,561
     Allowance for loan losses (4,491 ) 4,491
—
     Other real estate owned 783
(345 ) 438
     Premises and equipment 10,115
953
11,068
     Goodwill 6,745
11,589
18,334
     Core deposit intangible —
7,269
7,269
     Other Intangibles 1,228
11,070
12,298
     Other assets 24,858
(5,813 ) 19,045
              Total assets acquired $ 457,324
$ 21,305
$ 478,629
Liabilities
     Deposits $ 348,314
$ (343 ) $ 347,971
     Securities sold under agreements to repurchase 21,180
—
21,180
    FHLB advances 19,000
(29 ) 18,971
     Other borrowings 7,724
—
7,724
     Junior subordinated debentures —
—
—
     Other liabilities 15,477
—
15,477
              Total liabilities assumed 411,695
(372 ) 411,323
             Net assets acquired $ 45,629
$ 21,677
$ 67,306

Consideration Paid
     Cash $ 19,046
     Common Stock 48,260
         Total consideration paid $ 67,306

The Company has recognized approximately $3.6 million, pre-tax, of acquisition costs for the SCB acquisition. Of this amount, $2.7 million was recognized during 2019. These costs are included in legal and professional and other expense. Of the $7.9 million fair value adjustment to loans, approximately $7.2 million is being accreted to interest income over the remaining term of the loans. The differences between fair value and acquired value of the assumed time deposits of $(343,000), and the assumed FHLB advances $(29,000), are being amortized to interest expense over the remaining life of the liabilities. The core deposit intangible assets, with a fair value of $7.3 million, will be amortized on an accelerated basis over its estimated life of 10 years. In addition, the Company recorded a $4.2 million intangible asset for customer list of Soy Bank's Ag service business line and $8.1 million intangible asset for the customer list for Soy Bank's Insurance business line. These intangibles are being amortized over the estimated life of 12 years and 11 years, respectively.

The following unaudited pro forma condensed combined financial information presents the results of operations of the Company, including the effects of the purchase accounting adjustments and acquisition expenses, had the SCB acquisition taken place at the beginning of the period (dollars in thousands):

Three months ended Six months ended
June 30, 2018 June 30, 2018
Net interest income $ 30,817
$ 57,368
Provision for loan losses 1,877
2,932
Non-interest income 12,765
25,469
Non-interest expense 27,222
51,440
  Income before income taxes 14,483
28,465
Income tax expense 3,422
7,007
   Net income $ 11,061
$ 21,458

Earnings per share
   Basic $ 0.72
$ 1.46
   Diluted 0.72
1.46

Basic weighted average shares outstanding 15,287,245
14,647,966
Diluted weighted average shares outstanding 15,304,607
14,665,269

The unaudited pro forma condensed combined financial statements do not reflect any anticipated cost savings and revenue enhancements. Accordingly, the pro forma results of operations of the Company as of and after the SCB business combination may not be indicative of the results that actually would have occurred if the combination had been in effect during the periods presented or of the results that may be attained in the future.

~~First BancTrust Corporation~~

On December 11, 2017, the Company and Project Hawks Merger Sub LLC (formerly known as Project Hawks Merger Sub Corp.), a newly formed Delaware limited liability company and wholly-owned subsidiary of the Company (“Hawks Merger Sub”), entered into an Agreement and Plan of Merger (as amended as of January 18, 2018, the “First Bank Merger Agreement") with First BancTrust Corporation, a Delaware corporation (“First Bank”), pursuant to which, among other things, the Company agreed to acquire 100% of the issued and outstanding shares of First Bank pursuant to a business combination whereby First Bank will merge with and into Hawks Merger Sub, with Hawks Merger Sub as the surviving entity and a wholly-owned subsidiary of the Company (the “First Bank Merger”).

At the effective time of the First Bank Merger, each share of common stock, par value $0.01 per share, of First Bank issued and outstanding immediately prior to the effective time of the First Bank Merger (other than shares held in treasury by First Bank and shares held by stockholders who had properly made and not withdrawn a demand for appraisal rights under Delaware law) converted into and become the right to receive, (a) $5.00 in cash and (b) 0.800 shares of common stock, par value $4.00 per share, of the Company and cash in lieu of fractional shares, less any applicable taxes required to be withheld and subject to certain adjustments, all as set forth in the First Bank Merger Agreement.

On May 1, 2018, the Company issued an aggregate total of 1,643,900 shares of common stock valued at $37.32 per share and approximately $10,275,000, including cash in lieu of fractional shares. First Bank’s wholly-owned bank subsidiary, First Bank & Trust, IL (“First Bank & Trust”), merged with and into First Mid Bank on August 10, 2018. At the time of the bank merger, First Bank & Trust’s banking offices became branches of First Mid Bank. As a result of the acquisition, the Company will have an opportunity to increase its deposit base and reduce transaction costs. The Company also expects to reduce costs through economies of scale.

~~The acquisition was accounted for under the acquisition method of accounting in accordance with ASC 805,~~ ~~“BusinessCombinations ("ASC 805"),”~~ and accordingly the assets and liabilities were recorded at their estimated fair values as of the date of acquisition. Fair values are subject to refinement for up to one year after the closing date of May 1, 2018 as additional information regarding the closing date fair values become available. The total consideration paid was used to determine the amount of goodwill resulting from the transaction. As the total consideration paid exceeded the net assets acquired, goodwill of $26.5 million was recorded for the acquisition. Goodwill recorded in the transaction, which reflects the synergies and economies of scale expected from combining operations and the enhanced revenue opportunities from the Company’s service capabilities, is not tax deductible, and was all assigned to the banking segment of the Company.

~~The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of the First Bank acquisition (in thousands).~~

Acquired
Book Value Fair Value Adjustments As Recorded by
First Bank
Assets

     Cash & due from banks $ 20,598
$ —
$ 20,598
     Investment Securities 59,906
(320 ) 59,586
     Loans 371,156
(7,875 ) 363,281
     Allowance for loan losses (4,412 ) 4,412
—
     Other real estate owned 547
(12 ) 535
     Premises and equipment 10,126
(689 ) 9,437
     Goodwill 543
25,948
26,491
     Core deposit intangible —
5,224
5,224
     Other assets 16,389
(256 ) 16,133
              Total assets acquired $ 474,853
$ 26,432
$ 501,285
Liabilities and Stockholders' Equity

     Deposits $ 384,323
$ 1,301
$ 385,624
     FHLB advances 31,000
(328 ) 30,672
     Subordinated debentures 6,186
(1,451 ) 4,735
     Other liabilities 8,665
(36 ) 8,629
              Total liabilities assumed 430,174
(514 ) 429,660
              Net assets acquired $ 44,679
$ 26,946
$ 71,625

Consideration Paid
     Cash $ 10,275
     Common stock 61,350
              Total consideration paid $ 71,625

The Company has recognized approximately $5.2 million, pre-tax, of acquisition costs for the First Bank acquisition. Of this amount, $167,000 was recognized during 2019. These costs are included in legal and professional and other expense. Of the $7.9 million fair value adjustment to loans, approximately $3.6 million is being accreted to interest income over the remaining term of the loans. The differences between fair value and acquired value of the assumed time deposits of $1.3 million, of the assumed FHLB advances of $(328,000) and of the assumed subordinated debentures of $(1,451,000), are being amortized to interest expense over the remaining life of the liabilities. The core deposit intangible asset, with a fair value of $5.2 million, will be amortized on an accelerated basis over its estimated life of 10 years.

The following unaudited pro forma condensed combined financial information presents the results of operations of the Company, including the effects of the purchase accounting adjustments and acquisition expenses, had the First Bank acquisition taken place at the beginning of the period (dollars in thousands):

Three months ended Six months ended

June 30, 2018 June 30, 2018
Net interest income $ 29,062
$ 57,035
Provision for loan losses 1,927
3,132
Non-interest income 8,640
16,960
Non-interest expense 21,870
43,654
  Income before income taxes 13,905
27,209
Income tax expense 3,307
6,715
   Net income $ 10,598
$ 20,494

Earnings per share

   Basic $ 0.76
$ 1.42
   Diluted 0.76
1.42

Basic weighted average shares outstanding 13,956,674
14,407,273
Diluted weighted average shares outstanding 13,974,048
14,424,576

~~Note 9~~ -- Leases

Effective January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842). As of ~~June 30, 2019,~~March 31, 2020, substantially all of the Company's leases are operating leases for real estate property for bank branches, ATM locations, and office space. These leases are generally for periods of 1 to 25 years with various renewal options. The Company elected the optional transition method permitted by Topic 842. Under this method, ~~an entity~~the Company recognizes and measures leases that exist at the application date and prior comparative periods are not adjusted. In addition, the Company elected the package of practical expedients:

1. An entity need not reassess whether any expired or existing contracts contain leases.

2. An entity need not reassess the lease classification for any expired or existing leases.

3. An entity need not reassess initial direct costs for any existing leases.

The Company has also elected the practical expedient, which may be elected separately or in conjunction with the package noted above, to use hindsight in determining the lease term and in assessing the right-of-use assets. This expedient must be applied consistently to all leases. Lastly, the Company has elected to use the practical expedient to include both lease and non-lease components as a single component and account for it as a lease.

In addition, The Company has elected to not include short-term leases (i.e.leases with terms of twelve months or less) or equipment leases (primarily copiers) deemed immaterial, on the consolidated balance sheets.

For leases in effect at January 1, 2019 and for leases commencing thereafter, the Company recognizes a lease liability and a right-of-use asset, based on the present value of lease payments over the lease term. The discount rate used in determining present value was the Company's incremental borrowing rate which is the FHLB fixed advance rate based on the remaining lease term as of January 1, 2019, or the commencement date for leases subsequently entered into.

The following table contains supplemental balance sheet information related to leases (dollars in thousands):


	June 30, 2019			March 31, 2020			December 31, 2019
Operating lease right-of-use assets	$	12,805		$	16,542		$	17,006
Operating lease liabilities	12,815			16,568			17,007
Weighted-average remaining lease term	5.5 years			7.1 years			7.3 years
Weighted-average discount rate	3.21		%	3.08		%	3.07		%

Certain of the Company's leases contain options to renew the lease; however, not all renewal options are included in the calculation of lease liabilities as they are not reasonably certain to be exercised. The Company's leases do not contain residual value guarantees or material variable lease payments. The Company does not have any other material restrictions or covenants imposed by leases that would impact the Company's ability to pay dividends or cause the Company to incur additional financial obligations.

Maturities of lease liabilities were as follows (in thousands):


Year ending December 31,
2019 (excluding the six months ended June 30, 2019)	$	1,326
2020	2,573			$	2,476
2021	2,346			2,391
2022	2,057			2,099
2023	1,276			1,849
2024				1,407
Thereafter	5,177			9,085
Total lease payments	14,755			19,307
Less imputed interest	(1,940		)	(2,739		)
Total lease liability	$	12,815		$	16,568

The components of lease expense for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 were as follows (in thousands):


	Three months ended June 30,			Six months ended June 30,			Thee months ended March 31,
	2019						2020			2019
Operating lease cost	$	647		$	1,318		$	642		$	671
Short-term lease cost	22			45			46			23
Variable lease cost	432			656			169			224
Total lease cost	1,101			2,019			857			918
Income from subleases	(213		)	(461		)	(193		)	(248		)
Net lease cost	$	888		$	1,558		$	664		$	670

As the Company elected not to separate lease and non-lease components, the variable lease cost primarily represents variable payment such as common area maintenance and copier expense. The Company does not have any material sub-lease agreements. Cash paid for amounts included in the measurement of lease liabilities was (in thousands):

June 30, 2019
Operating cash flows from operating leases $ 1,340

Note 109 -- Derivatives

The Company utilizes an interest rate swap, designated as a fair value hedge, to mitigate the risk of changing interest rates on the fair value of a fixed rate commercial real estate loan. For derivative instruments that are designed and qualify as a fair value hedge, the gain or loss on the derivative instrument, as well as the offsetting loss or gain in the hedged asset attributable to the hedged risk, is recognized in current earnings.

~~A summary~~Derivatives Designated as Hedging Instruments

The following table provides the outstanding notional balances and fair values of ~~the Company's fair value hedge~~outstanding derivatives designated as hedging instruments as of ~~June 30,~~March 31, 2020 and December 31, 2019 ~~is as follows~~ (in thousands):

June 30, 2019
Derivative Balance Sheet Location Weighted Average Remaining Maturity (Years) Pay Rate Received Rate Notional Amount Estimated Value
Interest rate swap agreement Other liabilities 9.9 years 4.5 % 1 month LIBOR + 231.5bps $ 9,783
$ 293



	Balance Sheet Location	Weighted Average Remaining Maturity (Years)	Notional Amount		Estimated Value
March 31, 2020
Fair Value Hedges:
Interest rate swap agreements	Other liabilities	9.1 years	$	14,694	$	(1,709	)
December 31, 2019
Fair Value Hedges:
Interest rate swap agreements	Other liabilities	9.3 years	$	14,748	$	(325	)

The effects of the fair value ~~hedge~~hedges on the Company's income statement during the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 were as follows (in thousands):


		Three months ended June 30,			Six months ended June 30,				Three months ended March 31,
Derivative	Location of Gain (Loss) on Derivative	2019			2019			Location of Gain (Loss) on Derivative	2020			2019
Interest rate swap agreement	Interest income on loans	$	(293	)	$	(293	)
Interest rate swap agreements								Interest income on loans	$	(1,384	)	—

		Three months ended June 30,			Six months ended June 30,				Three months ended March 31,
Derivative	Location of Gain (Loss) on Hedged Item	2019			2019			Location of Gain (Loss) on Hedged Item	2020			2019
Interest rate swap agreement	Interest income on loans	$	293		$	293
Interest rate swap agreements								Interest income on loans	$	1,384		—

As of ~~June 30, 2019,~~March 31, 2020, the following amounts were recorded on the consolidated balance sheet related to cumulative basis adjustment for fair value hedges (in thousands):


Line Item in the Balance Sheet in Which the Hedge Item is Included	Line Item in the Balance Sheet in Which the Hedge Item is Included	Carrying Amount of the Hedged Asset			Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Asset			Line Item in the Balance Sheet in Which the Hedge Item is Included	Carrying Amount of the Hedged Asset			Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Asset
Loans	Loans		$	10,076		$	293	Loans		$	12,985		$	1,709

Derivatives Not Designated as Hedging Instruments

The following amounts represent the notional amounts and gross fair value of derivative contracts not designated as hedging instruments outstanding during the three months ended March 31, 2020 (in thousands):



March 31, 2020	Balance Sheet Location	Weighted Average Remaining Maturity (Years)	Notional Amount		Estimated Value
Interest rate swap agreements	Other assets	9.2 years	$	31,490	$	1,002
Interest rate swap agreements	Other liabilities	9.2 years	$	31,490	$	(1,002	)

4742

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is intended to provide a better understanding of the consolidated financial condition and results of operations of the Company and its subsidiaries as of, and for the three ~~and six~~-month periods ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~. This discussion and analysis should be read in conjunction with the consolidated financial statements, related notes and selected financial data appearing elsewhere in this report.

Forward-Looking Statements

This report may contain certain forward-looking statements, such as discussions of the Company’s pricing and fee trends, credit quality and outlook, liquidity, new business results, expansion plans, anticipated expenses, planned schedules and ~~planned schedules.~~COVID-19. The Company 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 the Company, 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 those described in Item 1A-“Risk Factors” and other sections of the Company’s Annual Report on Form 10-K and the Company’s other filings with the SEC, and changes in interest rates, general economic conditions and those in the Company’s market area, legislative/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 the loan or investment portfolios and the valuation of the investment portfolio, the Company’s success in raising capital and effecting and integrating acquisitions, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area and accounting principles, policies and ~~guidelines.~~guidelines, the severity, magnitude and duration of COVID-19 pandemic, the direct and indirect impact of such pandemic, including responses to the pandemic by the government, businesses customers' businesses, the disruption of global, national, state and local economies associated with the COVID-19 pandemic, which could affect the Company's liquidity and capital positions, impair the ability of the Company's borrowers to repay outstanding loans, impair collateral values, and further increase the allowance for credit losses, and the impact of the COVID-19 pandemic on the Company's financial results, including possible lost revenue and increased expenses (including cost of capital), as well as possible goodwill impairment charges. Furthermore, 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. Further information concerning the Company and its business, including a discussion of these and additional factors that could materially affect the Company’s financial results, is included in the Company’s ~~2018~~2019 Annual Report on Form 10-K under the headings “Item 1. Business" and “Item 1A. Risk Factors."

~~Acquisitions~~COVID-19 Impact

~~On May 1, 2018,~~The COVID-19 outbreak is an unprecedented event that provides significant economic uncertainty for a broad spectrum of industries. The spread of this outbreak has caused significant disruptions in the U.S. economy and some of these impacts will be long lasting. As it continues to evolve it is not clear when or how the pandemic-driven contraction will recover. Congress, the President, and the Federal Reserve have taken several actions designed to cushion the economic fallout. Most notably, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law at the end of March 2020 as a $2 trillion legislative package. The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. Many of the CARES Act provisions, as well as other recent legislative and regulatory efforts, are expected to have a material impact on financial institutions. The Company's strong track record and revenue diversification provide a solid foundation for earnings and capital. The Company is focused on supporting its customers, communities and employees during this unique operating environment. Following is a description of the impact COVID-19 is having, actions taken as a result of COVID-19, and certain risks to the Company ~~completed its acquisition of First Bank. Financial results for 2018 include~~that COVID-19 creates or exacerbates, as well as management's outlook on the income and expenses of First Bank & Trust for the period May 1 through December 31, 2018. At the date of the acquisition, the fair value of First Bank's total assets was $501 million, including $363 million of loans. The fair value of First Bank's deposits was $386 million. Net income before taxes was positively impacted by $3,018,000 due to First Bank's purchase accounting net accretion and amortization expense of intangibles during 2018. For the three months ended March 31, 2019, net income before taxes was positively impacted by $1,201,000 due to purchase accounting net accretion and amortization related to First Bank. During 2018, the Company also incurred $5 million of pre-tax acquisition expenses related to the acquisition of First Bank, comprised primarily of legal, consulting and change-in-control costs. During the six months ended June 30, 2019, pre-tax expenses related to this acquisition totaled $167,000.

On November 15, 2018, the Company completed its acquisition of SCB. Financial results for 2018 include the income and expenses of SCB for the period November 15 through December 31, 2018. At the date of the acquisition, the fair value of SCB's total assets was $479 million, including $248 million of loans. The fair value of SCB's deposits was $348 million. Net income before taxes was positively impacted by $462,000 due to SCB's purchase accounting net accretion and amortization expense of intangibles during 2018. For the six months ended June 30, 2019, net income before taxes was positively impacted by $1,085,000 due to purchase accounting net accretion and amortization related to SCB. During 2018, the Company also incurred $908,000 of pre-tax acquisition expenses related to the acquisition of SCB, comprised primarily of legal, consulting and change-in-control costs. During the six months ended June 30, 2019, pre-tax expenses related to this acquisition totaled $2,683,000.

current COVID-19 situation.

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Lending operations and accommodations to customers. In March 2020, First Mid Bank offered a 90-day commercial deferral program, primarily to hotel and restaurant borrowers. As of March 31, 2020, a total of $30.3 million was deferred. An additional 67 loans, totaling $98 million were deferred through April 17, 2020. In April 2020, First Mid Bank provided a 180-day residential mortgage deferral program to its customers. Through April 13, 2020, 37 customers, with balances totaling $3.9 million are participating in this program. In accordance with interagency guidance issued in March 2020, these short term deferrals are not considered troubled debt restructurings.

Beginning April 3, 2020, with the passage of the initial Paycheck Protection Program (“PPP”), administered by the Small Business Administration (“SBA”), the Company actively participated in assisting existing and new customers with applications for resources through the program. PPP loans have a two-year term and earn interest at 1%. The Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. As of April 17, 2020, the Company has processed and approved with the SBA 1,384 PPP loans totaling $234.9 million. It is the Company’s understanding that loans funded through the PPP program are fully guaranteed by the U.S. government and as such do not represent a credit risk.

Employees.The Company has a business continuity plan in place that was executed in March 2020. Approximately half of the Company's workforce have the ability to work remotely with secure connections. In addition, various preventative and personal hygiene measures, in accordance with CDC guidelines have been implemented. To protect and ensure the safety of employees, as well as customers, all branch locations were transitioned to drive-thru use only. The Company increased the number of available sick days to every employee impacted in anyway by COVID-19 and offered financial assistance for any employee with need.

Asset impairment. The Company does not believe that any impairment exists due to COVID-19 to goodwill and other intangible assets, long-lived assets, mortgage servicing rights ("MSRs"), right of use assets, or available-for-sale investment securities at this time. While certain valuation assumptions and judgements will change to account for COVID-19 related circumstances, the Company does not expect significant changes in methodology used to determine the fair value of assets in accordance with GAAP. It is uncertain whether prolonged effects of COVID-19 will result in future impairment charges related to any of these assets.

Capital and liquidity.The Company's and First Mid Bank's capital levels are higher today than during the Great Recession of 2008. The Company could absorb approximately $140 million of total loan losses before capital levels would fall below regulatory levels considered well-capitalized. In comparison, the Company's aggregate net charge offs over the last 20 years was $30.4 million. Current capital levels also support the Company's recent loan stress testing of the most vulnerable industry sectors impacted by COVID-19. The following table shows this loan sector detail.

The following table provides information related to some of the most vulnerable sectors:



Sector Detail ($ in thousands)	Balance		% of Loan Portfolio	Average LTV	Average DSCR
Retail	$	162,071	5.9%	52%	1.75x
(Merchandise $79.4 million)
Hotel	119,676		4.4%	61%	1.41x
(67% major chains)
Restaurant	70,141		2.6%	89%	2.02x
(79% franchise/drive-thru/limited service)
Oil Related	5,110		0.2%	54%	3.74x
($2.2 million production)

The Company maintains access to multiple sources of liquidity. Currently, the Company's total liquidity sources could provide $798.8 million of total available capacity as of March 31, 2020.

Management's outlook. The Company's current financial position is strong and the fundamental earning capabilities of its currently existing operations is solid. Due to the uncertain economic outlook related to the COVID-19 crisis and the potential for loan losses and other asset impairments, it is anticipated that reserve levels will remain elevated compared to recent historical trends. All processes, procedures and internal controls are expected to continue as outlined in existing applicable policies despite remote working status of many employees. While the Company does not currently anticipate any material changes or deficiencies to its capital or liquidity sources, uncertainties about duration and overall effects on the economy could result in more adverse effects than expected.

Overview

This overview of management’s discussion and analysis highlights selected information in this document and may not contain all of the information that is important to you. For a more complete understanding of trends, events, commitments, uncertainties, liquidity, capital resources, and critical accounting estimates which have an impact on the Company’s financial condition and results of operations you should carefully read this entire document.

Net income was $~~24,297,000~~9,999,000 and ~~$18,427,000~~$13,316,000 for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~, respectively. Diluted net income per common share ~~available to common stockholders~~ was $~~1.45~~0.60 and $~~1.38~~0.80 for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~.

The following table shows the Company’s annualized performance ratios for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~, compared to the performance ratios for the year ended December 31, ~~2018~~2019:


	Six months ended				Year ended		Three months ended				Year ended
	June 30, 2019		June 30, 2018		December 31, 2018		March 31, 2020		March 31, 2019		December 31, 2019
Return on average assets	1.26	%	1.23	%	1.13	%	1.05	%	1.38	%	1.25	%
Return on average common equity	9.89	%	11.06	%	9.59	%	7.48	%	11.02	%	9.49	%
Average equity to average assets	12.78	%	11.09	%	11.77	%	13.97	%	12.51	%	13.17	%

Total assets were ~~$3.8~~$3.9 billion at ~~June 30, 2019,~~March 31, 2020, compared to $3.8 billion as of December 31, ~~2018~~2019. From December 31, ~~2018~~2019 to ~~June 30, 2019,~~March 31, 2020, cash and interest bearing deposits increased ~~$27.0~~$97.0 million, net loan balances ~~decreased $98.4~~increased $43.6 million and investment securities ~~increased $65.5~~decreased $113.2 million. Net loan balances were $~~2.52~~2.71 billion at ~~June 30, 2019~~March 31, 2020 compared to $~~2.62~~2.67 billion at December 31, ~~2018~~2019.

Net interest margin, on a tax ~~effected~~equivalent basis, defined as net interest income divided by average interest-earning assets, was ~~3.69%~~3.51% for the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, down from ~~3.73%~~3.74% for the same period in ~~2018.~~2019. This decrease was primarily due to ~~higher costs of deposits and borrowings offset by higher~~lower yields on loans and ~~investments, and accretion income from previous acquisitions.~~investments. Net interest income before the provision for loan losses was ~~$63.6~~$29.9 million compared to net interest income of ~~$50.6~~$32.3 million for the same period in ~~2018.~~2019. The ~~increase~~decrease in net interest income was primarily due to the ~~growth~~decrease in ~~average earnings assets as a result of loans and~~ investment securities ~~acquired from First Bank~~balances and ~~SCB partially offset by an increase in cost of deposits~~lower yields on investments and ~~borrowings.~~loans.

Total non-interest income of ~~$28.2~~$16.5 million increased ~~$12.4~~$1.9 million or ~~78.1%~~12.8% from ~~$15.8~~$14.6 million for the same period last year. ~~Wealth management revenues increased $3.9 million, primarily due the addition of farm management and brokerage revenues from the SCB acquisition, insurance~~Insurance commissions increased approximately ~~$7.0~~$1.1 million, security gains of $531,000 were realized and other income increased $330,000 primarily due to ~~revenues~~fees received from ~~the acquisition of SCB, and revenue from ATM and debit cards increased $754,000 primarily due to an increase in electronic transactions from the acquisitions of First Bank & SCB.~~derivative transactions.

Total non-interest expense of ~~$58.5~~$27.7 million ~~increased $19.3 million~~decreased $579,000 or ~~49.3%~~2.0% from ~~$39.2~~$28.3 million for the same period last year. ~~This increase~~The decrease was primarily due to ~~legal~~declines in occupancy and ~~professional costs~~equipment expense, FDIC insurance expense, and ~~intangibles amortization associated with the acquisition of First Bank and SCB, and an increase in salaries and benefits~~ATM/debit card expense.

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Following is a summary of the factors that contributed to the changes in net income (in thousands):


	Change in Net Income 2019 versus 2018						Change in Net Income 2020 versus 2019
	Three months ended June 30,			Six months ended June 30,				Three months ended March 31,
Net interest income	$	3,859		$	12,916			$	(2,379	)
Provision for loan losses	1,786			1,894				(4,534		)
Other income, including securities transactions	5,227			12,379				1,871
Other expenses	(9,391		)	(19,327		)		579
Income taxes	(537		)	(1,992		)		1,146
Increase in net income	$	944		$	5,870
Decrease in net income								$	(3,317	)

Credit quality is an area of importance to the Company. Total nonperforming loans were ~~$25.8~~$24.5 million at ~~June 30, 2019,~~March 31, 2020, compared to ~~$24.7~~$26.0 million at ~~June 30, 2018~~March 31, 2019 and ~~$29.8~~$27.8 million at December 31, ~~2018.~~2019. See the discussion under the heading “Loan Quality and Allowance for Loan Losses” for a detailed explanation of these balances. Repossessed asset balances totaled ~~$3.6~~$2.8 million at ~~June 30, 2019~~March 31, 2020 compared to ~~$2.5~~$3.9 million at ~~June 30, 2018~~March 31, 2019 and ~~$2.6~~$3.7 million at December 31, ~~2018.~~2019. The Company’s provision for loan losses for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 was $5,481,000 and ~~2018 was $1,038,000 and $2,932,000,~~$947,000, respectively. Total loans past due 30 days or more were ~~1.19%~~1.43% of loans at ~~June 30, 2019~~March 31, 2020 compared to ~~0.82%~~1.13% at ~~June 30, 2018,~~March 31, 2019, and ~~1.06%~~1.02% of loans at December 31, ~~2018.~~2019. At ~~June 30, 2019,~~March 31, 2020, the composition of the loan portfolio remained similar to the same period last year. Loans secured by both commercial and residential real estate comprised approximately 66.8% of the loan portfolio as of ~~June 30, 2019~~March 31, 2020 and ~~66.1%~~68.0% as of December 31, ~~2018.~~2019.

The Company’s capital position remains strong and the Company has consistently maintained regulatory capital ratios above the “well-capitalized” standards. The Company’s Tier 1 capital to risk weighted assets ratio calculated under the regulatory risk-based capital requirements at ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ and December 31, ~~2018~~2019 was ~~13.92%~~15.05%, ~~13.16%~~13.55% and ~~12.76%~~14.79%, respectively. The Company’s total capital to risk weighted assets ratio calculated under the regulatory risk-based capital requirements at ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ and December 31, ~~2018~~2019 was ~~14.82%~~16.13%, ~~13.97%~~14.45% and ~~13.63%~~15.74%, respectively. The increase in these ratios from December 31, 2018 was primarily due to net income added to retained earnings.

On March 27, 2020, the federal banking regulatory agencies, issued an interim final rule which provided an option to delay the estimated impact on regulatory capital of ASU 2016-13, which was effective January 1, 2020. The initial impact of adoption of ASU 2016-13 as well as 25% of the quarterly increases in the allowance for credit losses subsequent to adoption of ASU 2016-13 ("CECL adjustments") will be delayed for two years. After two years, the cumulative amount of these adjustments will be phased out of the regulatory capital calculation over a three year period, with 75% of the adjustments included in year three, 50% of the adjustments included in year four and 25% of the adjustments included in year five. After five years, the temporary delay of ASU 2016-13 adoption will be fully reversed. The Company has elected this option.

The Company’s liquidity position remains sufficient to fund operations and meet the requirements of borrowers, depositors, and creditors. The Company maintains various sources of liquidity to fund its cash needs. See the discussion under the heading “Liquidity” for a full listing of sources and anticipated significant contractual obligations.

The Company enters into financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include lines of credit, letters of credit and other commitments to extend credit. The total outstanding commitments at ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ were ~~$538~~$596 million and ~~$512~~$601 million, respectively.

Federal Deposit Insurance Corporation Insurance Coverage. As a FDIC-insured institution First Mid Bank is required to pay deposit insurance premium assessments to the FDIC. A number of requirements with respect to the FDIC insurance system have affected results, including insurance assessment rates.

On September 30, 2018, the Deposit Insurance Fund Reserve Ratio reached 1.36 percent. Because the reserve ratio exceeded 1.35 percent, two deposit insurance assessment changes occurred under the FDIC regulations:

Surcharges on large banks (total consolidated assets of less than $10 billion) ended; the last surcharge on large banks was collected on December 28, 2018.

Small banks (total consolidated assets of less than $10 billion) were awarded assessment credits for the portion of their assets that contributed to the growth in the reserve ratio from 1.15 percent to 1.35 percent, to be applied when the reserve ratio is at least 1.38 percent.

On August 20, 2019, the FDIC Board approved a Notice of Proposed Rulemaking which amended the Small Bank Credits regulation to permit credit usage when the reserve ratio is at least 1.35 percent (rather than 1.38%). Additionally, after eight quarters of credit usage, the FDIC would remit the remaining full nominal value to each bank. Eligible banks were notified in January 24, 2019 with preliminary estimate of their share of small bank assessment credits. First Mid Bank's Small Bank Credit was $931,853. A portion of the credit was applied to the second and third quarter assessments paid in 2019 and the fourth quarter assessment paid in 2020. The remaining credit of approximately $163,700 was applied to the Company's estimate of expense for the first quarter of 2020.

The Company expensed ~~$464,000~~$93,000 and ~~$514,000~~$268,000 for ~~this~~the assessment during the first ~~six~~three months of ~~2019~~2020 and ~~2018~~2019, respectively.

In addition to its insurance assessment, through March 29, 2019, each insured bank was subject to quarterly debt service assessments in connection with bonds issued by a government corporation that financed the federal savings and loan bailout. The Company expensed ~~$12,000 and $52,000~~$11,000 during the first ~~six~~three months of 2019 ~~and 2018~~ for this assessment, ~~respectively.~~

Basel III. In September 2010, the Basel Committee on Banking Supervision proposed higher global minimum capital standards, including a minimum Tier 1 common capital ratio and additional capital and liquidity requirements. On July 2, 2013, the Federal Reserve Board approved a final rule to implement these reforms and changes required by the Dodd-Frank Act. This final rule was subsequently adopted by the OCC and the FDIC.

As included in the proposed rule of June 2012, the final rule includes new risk-based capital and leverage ratios, which will be phased in from 2015 to 2019, and refines the definition of what constitutes “capital” for purposes of calculating those ratios. The new minimum capital level requirements applicable to the Company and First Mid Bank beginning in 2015 are: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6%; (iii) a total capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%. The rule also establishes a “capital conservation buffer” of 2.5% above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital and would result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement is being phased in beginning in January 2016 at 0.625% of risk weighted assets and will increase by that amount each year until fully implemented in January 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if its capital level falls below the buffer amount.

The final rule also makes three changes to the proposed rule of June 2012 that impact the Company. First, the proposed rule would have required banking organizations to include accumulated other comprehensive income (“AOCI”) in common equity tier 1 capital. AOCI includes accumulated unrealized gains and losses on certain assets and liabilities that have not been included in net income. Under existing general risk-based capital rules, most components of AOCI are not included in a banking organization's regulatory capital calculations. The final rule allows community banking organizations to make a one-time election not to include these additional components of AOCI in regulatory capital and instead use the existing treatment under the general risk-based capital rules that excludes most AOCI components from regulatory capital. The Company made this election.

Second, the proposed rule would have modified the risk-weight framework applicable to residential mortgage exposures to require banking organizations to divide residential mortgage exposure into two categories in order to determine the applicable risk weight. The final rule, however, retains the existing treatment for residential mortgage exposures under the general risk-based capital rules.

Third, the proposed rule would have required banking organizations with total consolidated assets of less than $15 billion as of December 31, 2009, such as the Company, to phase out over ten years any trust preferred securities and cumulative perpetual preferred securities from its Tier 1 capital regulatory capital. The final rule, however, permanently grandfathers into Tier 1 capital of depository institution holding companies with total consolidated assets of less than $15 billion as of December 31, 2009 any trust preferred securities or cumulative perpetual preferred stock issued before May 19, 2010.

On March 27, 2020, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency (the "agencies") issued and interim final rule ("IFR") that delays the estimated impact on regulatory capital stemming from the implementation of ASU 2016-13 for a transition period of up to five years ("CECL IFR"). The goal of the CECL IFR is to provide regulatory relief to banking organizations that are required to adopt ASU 2016-13 as of January 1, 2020 in order to allow them to better focus on support lending to credit-worthy households and businesses. The CECL IFR is calibrated to approximate the difference in allowances under ASU 2016-13 relative to the previous incurred loss methodology for the first two years of the transition period. The cumulative difference at the end of the second year of the transition period is then phased in to regulatory capital over a three-year transition period. A banking organization's five-year transition period under CECL IFR begins on the date it would have been required to adopt ASU 2016-13 under U.S. GAAP regardless of whether the banking organization uses the statutory relief offered under the CARES Act.

See discussion under the heading "Capital Resources" for a description of the Company's and First Mid Bank's risk-based capital.

Critical Accounting Policies and Use of Significant Estimates

The Company has established various accounting policies that govern the application of U.S. generally accepted accounting principles in the preparation of the Company’s consolidated financial statements. The significant accounting policies of the Company are described in the footnotes to the consolidated financial statements included in the Company’s ~~2018~~2019 Annual Report on Form 10-K. Certain accounting policies involve significant judgments and assumptions by management that have a material impact on the carrying value of certain assets and liabilities; management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and assumptions, which could have a material impact on the carrying values of assets and liabilities and the results of operations of the Company.

Investment in Debt and Equity Securities. The Company classifies its investments in debt and equity securities as either held-to-maturity or available-for-sale in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” which was codified into ASC 320. Securities classified as held-to-maturity are recorded at amortized cost. Available-for-sale securities are carried at fair value. Fair value calculations are based on quoted market prices when such prices are available. If quoted market prices are not available, estimates of fair value are computed using a variety of techniques, including extrapolation from the quoted prices of similar instruments or recent trades for thinly traded securities, fundamental analysis, or through obtaining purchase quotes. Due to the subjective nature of the valuation process, it is possible that the actual fair values of these investments could differ from the estimated amounts, thereby affecting the financial position, results of operations and cash flows of the Company. If the estimated value of investments is less than the cost or amortized cost, the Company evaluates whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment. If such an event or change has occurred and the Company determines that the impairment is other-than-temporary, a further determination is made as to the portion of impairment that is related to credit loss. The impairment of the investment that is related to the

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credit loss is expensed in the period in which the event or change occurred. The remainder of the impairment is recorded in other comprehensive income.

Allowance for ~~Loan Losses.~~Credit Losses - Held-to-Maturity Securities. Currently all of the Company's held-to-maturity securities are government agency-backed securities for which the risk of loss is minimal. Accordingly, the Company does not record an allowance for credit losses on held-to-maturity securities.

Loans. Loans are reported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase discounts and premiums, fair value hedge accounting adjustments and deferred loan fees and costs. Accrued interest is reported separately and is included in interest receivable in the consolidated balance sheets.

Allowance for Credit Losses - Loans. The Company believes the allowance for ~~loan~~credit losses for loans is the critical accounting policy that requires the most significant judgments and assumptions used in the preparation of its consolidated financial statements. The allowance for credit losses for loans represents the best estimate of losses inherent in the existing loan portfolio. An estimate of potential losses inherent in the loan portfolio are determined and an allowance for those losses is established by considering factors including historical loss rates, expected cash flows and estimated collateral values. In assessing these factors, the Company ~~use organizational history~~uses relevant available information, from internal and ~~experience with credit decisions~~external sources, relating to past events, current conditions and ~~related outcomes.~~ reasonable and supportable forecasts.

The allowance for ~~loan~~credit losses ~~represents~~is measured on a collective (pool) basis for non-impaired loans with similar risk characteristics. Historical credit loss experience provides the ~~best~~basis for the estimate of ~~losses inherent~~expected credit losses. Adjustments to historical loss information are made for relevant factors to each pool including merger & acquisition activity, economic conditions, changes in ~~the existing loan portfolio. The allowance for loan losses is increased by the provision for loan losses charged to expense~~policies, procedures & underwriting, and reduced by loans charged off, net of recoveries. The Company formally evaluates the allowance for loan losses quarterly. If the underlying assumptions later prove to be inaccurate based on subsequent loss evaluations, the allowance for loan losses is adjusted.

concentrations. The Company estimates the appropriate level of allowance for ~~loan~~credit losses for impaired loans by ~~separately~~ evaluating ~~impaired and non-impaired loans.~~them separately. A specific allowance is assigned to an impaired loan when expected cash flows or collateral ~~do not justify~~are less than the carrying amount of the loan.

Allowance for Credit Losses - Off-Balance Sheet Credit Exposures. The ~~methodology used~~Company estimates expected credit losses over the contractual period that the Company is exposed to ~~assign an~~credit risk via a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company. The allowance ~~to a non-impaired loan is more subjective. Generally, the allowance assigned to non-impaired loans is determined based on migration analysis of historical net~~for credit losses on ~~each loan segment with similar risk characteristics, adjusted for qualitative factors including the volume and severity of identified classified loans, changes~~off-balance sheet credit exposures is included in ~~economic conditions, changes in credit policies or underwriting standards, and changes~~other liabilities in the level of credit risk associated with specific industries and markets. Because the economic and business climate in any given industry or market, and its impact on any given borrower, can change rapidly, the risk profile of the loan portfolio is continually assessed and adjusted when appropriate. Notwithstanding these procedures, there still exists the possibility that the assessment could prove to be significantly incorrect and that an immediate adjustment to the allowance for loan losses would be required.consolidated balance sheets.

Other Real Estate Owned. Other real estate owned acquired through loan foreclosure is initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. The adjustment at the time of foreclosure is recorded through the allowance for loan losses. Due to the subjective nature of establishing the fair value when the asset is acquired, the actual fair value of the other real estate owned or foreclosed asset could differ from the original estimate. If it is determined that fair value temporarily declines subsequent to foreclosure, a valuation allowance is recorded through noninterest expense. Operating costs associated with the assets after acquisition are also recorded as noninterest expense. Gains and losses on the disposition of other real estate owned and foreclosed assets are netted and posted to other noninterest expense.

Mortgage Servicing Rights. The Company has elected to measure mortgage servicing rights under the amortization method. Using this method, servicing rights are amortized in proportion to and over the period of estimated net servicing income. The amortized assets are assessed for impairment based on fair value at each reporting date. Impairment is determined by stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation reserve, to the extent that fair value is less than the carrying amount of the servicing assets. Fair value in excess of the carrying amount of servicing assets is not recognized.

~~Investment in Debt and Equity Securities.~~ ~~The Company classifies its investments in debt and equity securities as either held-to-maturity or available-for-sale in accordance with Statement of Financial Accounting Standards (SFAS) No. 115,~~ ~~“Accounting for Certain Investments in Debt and Equity Securities,”~~ which was codified into ASC 320. Securities classified as held-to-maturity are recorded at cost or amortized cost. Available-for-sale securities are carried at fair value. Fair value calculations are based on quoted market prices when such prices are available. If quoted market prices are not available, estimates of fair value are computed using a variety of techniques, including extrapolation from the quoted prices of similar instruments or recent trades for thinly traded securities, fundamental analysis, or through obtaining purchase quotes. Due to the subjective nature of the valuation process, it is possible that the actual fair values of these investments could differ from the estimated amounts, thereby affecting the financial position, results of operations and cash flows of the Company. If the estimated value of investments is less than the cost or amortized cost, the Company evaluates whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment. If such an event or change has occurred and the Company determines that the impairment is other-than-temporary, a further determination is made as to the portion of impairment that is related to credit loss. The impairment of the investment that is related to the credit loss is expensed in the period in which the event or change occurred. The remainder of the impairment is recorded in other comprehensive income.

Deferred Income Tax Assets/Liabilities. The Company’s net deferred income tax asset arises from differences in the dates that items of income and expense enter into our reported income and taxable income. Deferred tax assets and liabilities are established for these items as they arise. From an accounting standpoint, deferred tax assets are reviewed to determine if they are realizable based on the historical level of taxable income, estimates of future taxable income and the reversals of deferred tax liabilities. In most cases, the realization of the deferred tax asset is based on future profitability. If the Company were to experience net operating losses for tax purposes in a future period, the realization of deferred tax assets would be evaluated for a potential valuation reserve.

Additionally, the Company reviews its uncertain tax positions annually under FASB Interpretation No. 48 (FIN No. 48), “Accounting for Uncertainty in Income Taxes,” codified within ASC 740. An uncertain tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount actually recognized is the largest amount of tax benefit that is greater than 50% likely to be recognized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded. A significant amount of judgment is applied to determine both whether the tax position meets the "more likely than not" test as well as to determine the largest amount of tax benefit that is greater than 50% likely to be recognized. Differences between the position taken by management and that of taxing authorities could result in a reduction of a tax benefit or increase to tax liability, which could adversely affect future income tax expense.

Impairment of Goodwill and Intangible Assets. Core deposit and customer relationships, which are intangible assets with a finite life, are recorded on the Company’s consolidated balance sheets. These intangible assets were capitalized as a result of past acquisitions and are being amortized over their estimated useful lives of up to 15 years. Core deposit intangible assets, with finite lives will be tested for impairment when changes in events or circumstances indicate that its carrying amount may not be recoverable. Core deposit intangible assets were tested for impairment as of September 30, ~~2018~~2019 as part of the goodwill impairment test and no impairment was identified.

As a result of the Company’s acquisition activity, goodwill, an intangible asset with an indefinite life, is reflected on the consolidated balance sheets. Goodwill is evaluated for impairment annually, unless there are factors present that indicate a potential impairment, in which case, the goodwill impairment test is performed more frequently than annually.

Fair Value Measurements. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Company estimates the fair value of a financial instrument using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine fair value. When observable market prices do not exist, the Company estimates fair value. The Company’s valuation methods consider factors such as liquidity and concentration concerns. Other factors such as model assumptions, market dislocations, and unexpected correlations can affect estimates of fair value. Imprecision in estimating these factors can impact the amount of revenue or loss recorded.

SFAS No. 157, “Fair Value Measurements”, which was codified into ASC 820, establishes a framework for measuring the fair value of financial instruments that considers the attributes specific to particular assets or liabilities and establishes a three-level hierarchy for determining fair value based on the transparency of inputs to each valuation as of the fair value measurement date.

The three levels are defined as follows:

Level 1 — quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 — inputs include quoted prices for similar assets and liabilities in active markets, quoted prices of identical or similar assets or liabilities in markets that are not active, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 — inputs that are unobservable and significant to the fair value measurement.

At the end of each quarter, the Company assesses the valuation hierarchy for each asset or liability measured. From time to time, assets or liabilities may be transferred within hierarchy levels due to changes in availability of observable market inputs to measure fair value at the measurement date. Transfers into or out of hierarchy levels are based upon the fair value at the beginning of the reporting period. A more detailed description of the fair values measured at each level of the fair value hierarchy can be found in Note 7 – Fair Value of Assets and Liabilities.

Results of Operations

Net Interest Income

The largest source of revenue for the Company is net interest income. Net interest income represents the difference between total interest income earned on earning assets and total interest expense paid on interest-bearing liabilities. The amount of interest income is dependent upon many factors, including the volume and mix of earning assets, the general level of interest rates and the dynamics of changes in interest rates. The cost of funds necessary to support earning assets varies with the volume and mix of interest-bearing liabilities and the rates paid to attract and retain such funds.

Net interest income is the excess of interest received from earning assets over interest paid on interest-bearing liabilities. For analytical purposes, net interest income is presented on a full tax equivalent ~~(TE)~~("TE") basis in the table that follows. The federal statutory rate in effect of 21% for ~~2019~~2020 and ~~2018~~2019 was used. The TE analysis portrays the income tax benefits associated with the tax-exempt assets. The year-to-date net yield on interest-earning assets excluding the TE adjustments of ~~$1,085,000~~$520,000 and ~~$963,000~~$548,000 for ~~2019~~2020 and ~~2018,~~2019, respectively were ~~3.63%~~3.45% at ~~June 30, 2019~~March 31, 2020 and ~~3.66%~~3.68% at ~~June 30, 2018.~~March 31, 2019.

5451

The Company’s average balances, fully tax equivalent interest income and interest expense, and rates earned or paid for major balance sheet categories are set forth for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ in the following table (dollars in thousands):



	Three months ended March 31, 2020							Three months ended March 31, 2019
	Average Balance			Interest		Average Rate		Average Balance			Interest		Average Rate
Assets
Interest-bearing deposits with other financial institutions	$	23,824		$	91	1.54	%	$	112,220		$	697	2.52	%
Federal funds sold	926			2		0.87	%	663			3		1.84	%
Certificates of deposit	5,064			31		2.46	%	7,348			38		2.10	%
Investment securities:
Taxable	543,799			3,339		2.46	%	582,290			3,811		2.62	%
Tax-exempt (1)	174,459			1,582		3.63	%	190,695			1,770		3.71	%
Loans net of unearned income (TE) (2)	2,703,051			30,215		4.50	%	2,622,816			32,280		4.99	%
Total earning assets	3,451,123			35,260		4.11	%	3,516,032			38,599		4.44	%
Cash and due from banks	93,283							64,329
Premises and equipment	59,476							59,192
Other assets	251,359							250,265
Allowance for loan losses	(29,990		)					(26,815		)
Total assets	$	3,825,251						$	3,863,003
Liabilities and Stockholders' Equity
Interest-bearing deposits
Demand deposits	$	1,264,489		$	1,092	0.35	%	$	1,335,626		$	1,622	0.49	%
Savings deposits	435,480			119		0.11	%	436,581			152		0.14	%
Time deposits	570,132			2,650		1.87	%	620,377			2,604		1.70	%
Total Interest Bearing Deposits	2,270,101			3,861		0.68	%	2,392,584			4,378		0.74	%
Securities sold under agreements to repurchase	202,693			194		0.38	%	182,466			260		0.58	%
FHLB advances	120,146			580		1.94	%	119,760			723		2.45	%
Fed Funds Purchased	2,110			10		1.91	%	—			—		—	%
Junior subordinated debt	18,873			218		4.65	%	29,014			438		6.12	%
Other debt	769			4		2.09	%	6,845			—		—	%
Total borrowings	344,591			1,006		1.17	%	338,085			1,421		1.70	%
Total interest-bearing liabilities	2,614,692			4,867		0.75	%	2,730,669			5,799		0.86	%
Non interest-bearing demand deposits	628,588					0.60	%	605,296					0.70	%
Other liabilities	47,539							43,723
Stockholders' equity	534,432							483,315
Total liabilities & equity	$	3,825,251						$	3,863,003
Net interest income				$	30,393						$	32,800
Net interest spread						3.36	%						3.58	%
Impact of non-interest bearing funds						0.15	%						0.16	%
TE Net yield on interest- earning assets						3.51	%						3.74	%

Three months ended June 30, 2019 Three months ended June 30, 2018

Average
Balance
Interest
Average
Rate

Average
Balance
Interest
Average
Rate
Assets
Interest-bearing deposits with other financial institutions $ 81,986
$ 555
2.72 % $ 19,904
$ 76
1.53 %
Federal funds sold 708
4
2.27 % 632
2
1.27 %
Certificates of deposit investments 6,736
37
2.20 % 2,520
12
1.91 %
Investment securities

Taxable 632,548
4,094
2.59 % 511,833
3,412
2.67 %
Tax-exempt (Municipals)(TE) 184,838
1,699
3.68 % 169,616
1,603
3.78 %
Loans (Net of Unearned Income)(TE) 2,563,960
31,719
4.96 % 2,244,639
25,523
4.56 %
Total earning assets 3,470,776
38,108
4.40 % 2,949,144
30,628
4.16 %
Cash and due from banks 74,459

43,930

Premises and equipment 59,407

44,493

Other assets 248,349

160,076

Allowance for loan losses (27,165 )

(24,159 )

Total assets $ 3,825,826

$ 3,173,484

Liabilities and Stockholders' Equity
Interest-bearing deposits

Demand deposits $ 1,284,511
$ 1,645
0.51 % $ 1,158,531
$ 602
0.21 %
Savings deposits 442,772
155
0.14 % 398,371
145
0.15 %
Time deposits 658,723
3,140
1.91 % 462,988
923
0.80 %
Total Interest Bearing Deposits 2,386,006
4,940
0.83 % 2,019,890
1,670
0.33 %
Securities sold under agreements to repurchase 153,872
215
0.56 % 147,633
65
0.18 %
FHLB advances 108,044
696
2.58 % 99,533
475
1.91 %
Fed Funds Purchased 115
1
3.49 % 4,140
22
2.13 %
Junior subordinated debt 29,056
406
5.60 % 27,697
349
5.05 %
Other debt 550
—
— % 9,375
96
4.11 %
Total borrowings 291,637
1,318
1.81 % 288,378
1,007
1.40 %
Total interest-bearing liabilities 2,677,643
6,258
0.94 % 2,308,268
2,677
0.47 %
Non interest-bearing demand deposits 606,170

0.76 % 502,694

0.38 %
Other liabilities 43,136

5,174

Stockholders' equity 498,877

357,348

Total liabilities & equity $ 3,825,826

$ 3,173,484

Net interest income
$ 31,850

$ 27,951

Net interest spread

3.46 %

3.69 %
Impact of non-interest bearing funds

0.18 %

0.10 %
TE Net yield on interest- earning assets

3.64 %

3.79 %
(1) The tax-exempt income is not recorded on a tax equivalent basis.
(2) Nonaccrual loans and loans held for sale are included in the average balances. Balances are net of unaccreted discount related to loans acquired.

Six months ended June 30, 2019 Six months ended June 30, 2018

Average
Balance
Interest
Average
Rate

Average
Balance
Interest
Average
Rate
Assets
Interest-bearing deposits with other financial institutions $ 97,019
$ 1,252
2.59 % $ 17,048
$ 136
1.61 %
Federal funds sold 686
7
2.06 % 562
3
1.02 %
Certificates of deposit investments 7,040
75
2.15 % 2,105
21
2.04 %
Investment securities:

Taxable 594,788
7,905
2.66 % 500,309
6,294
2.52 %
Tax-exempt (1) 200,517
3,469
3.46 % 167,090
3,121
3.74 %
Loans net of unearned income (TE) (2) 2,593,226
63,999
4.98 % 2,101,194
46,677
4.48 %
Total earning assets 3,493,276
76,707
4.42 % 2,788,308
56,252
4.06 %
Cash and due from banks 69,422

47,212

Premises and equipment 59,385

41,295

Other assets 248,674

149,453

Allowance for loan losses (26,991 )

(22,293 )

Total assets $ 3,843,766

$ 3,003,975

Liabilities and Stockholders' Equity
Interest-bearing deposits

Demand deposits $ 1,309,927
$ 3,267
0.50 % $ 1,116,810
$ 1,133
0.20 %
Savings deposits 439,694
307
0.14 % 381,356
282
0.15 %
Time deposits 639,656
5,744
1.81 % 400,679
1,517
0.76 %
Total Interest Bearing Deposits 2,389,277
9,318
0.79 % 1,898,845
2,932
0.31 %
Securities sold under agreements to repurchase 168,090
475
0.57 % 155,023
124
0.16 %
FHLB advances 113,870
1,419
2.51 % 83,748
750
1.81 %
Fed Funds Purchased 58
1
3.48 % 3,510
34
1.95 %
Junior subordinated debt 29,035
844
5.86 % 25,862
608
4.74 %
Other debt 3,680
—
— % 9,836
191
3.92 %
Total borrowings 314,733
2,739
1.75 % 277,979
1,707
1.24 %
Total interest-bearing liabilities 2,704,010
12,057
0.90 % 2,176,824
4,639
0.43 %
Non interest-bearing demand deposits 605,735

0.73 % 486,930

0.35 %
Other liabilities 42,882

6,931

Stockholders' equity 491,139

333,290

Total liabilities & equity $ 3,843,766

$ 3,003,975

Net interest income
$ 64,650

$ 51,613

Net interest spread

3.52 %

3.63 %
Impact of non-interest bearing funds

0.17 %

0.10 %
TE Net yield on interest- earning assets

3.69 %

3.73 %

(1) The tax-exempt income is ~~not recorded~~shown on a tax equivalent basis.

(2) Nonaccrual loans and loans held for sale are included in the average balances. Balances are net of unaccreted discount related to loans acquired.

5652

Changes in net interest income may also be analyzed by segregating the volume and rate components of interest income and

interest expense. The following table summarizes the approximate relative contribution of changes in average volume and interest rates to changes in net interest income for the three ~~and six~~-months ended ~~June 30, 2019,~~March 31, 2020, compared to the same ~~periods~~period in ~~2018~~2019 (in thousands):


	Three months ended June 30, 2019 compared to 2018 Increase / (Decrease)									Six months ended June 30, 2019 compared to 2018 Increase / (Decrease)									Three months ended March 31, 2020 compared to 2019 Increase / (Decrease)
	Total Change			Volume (1)			Rate (1)			Total Change			Volume (1)			Rate (1)			Total Change			Volume (1)			Rate (1)
Earning Assets:
Interest-bearing deposits	$	479		$	383		$	96		$	1,116		$	988		$	128		$	(606	)	$	(406	)	$	(200	)
Federal funds sold	2			—			2			4			1			3			(1		)	5			(6		)
Certificates of deposit investments	25			23			2			54			52			2			(7		)	(38		)	31
Investment securities:
Taxable	682			1,331			(649		)	1,611			1,245			366			(472		)	(245		)	(227		)
Tax-exempt (2)	96			141			(45		)	348			590			(242		)	(188		)	(148		)	(40		)
Loans (2) (3)	6,196			3,833			2,363			17,322			11,731			5,591			(2,065		)	5,615			(7,680		)
Total interest income	7,480			5,711			1,769			20,455			14,607			5,848			(3,339		)	4,783			(8,122		)
Interest-Bearing Liabilities:
Interest-bearing deposits
Demand deposits	1,043			74			969			2,134			220			1,914			(530		)	(83		)	(447		)
Savings deposits	10			56			(46		)	25			71			(46		)	(33		)	—			(33		)
Time deposits	2,217			518			1,699			4,227			1,274			2,953			46			(923		)	969
Securities sold under agreements to repurchase	150			3			147			351			11			340			(66		)	161			(227		)
FHLB advances	221			43			178			669			322			347			(143		)	16			(159		)
Federal Funds Purchased	(21		)	(81		)	60			(33		)	(78		)	45			10			10			—
Junior subordinated debt	57			18			39			236			80			156			(220		)	(130		)	(90		)
Other debt	(96		)	(47		)	(49		)	(191		)	(73		)	(118		)	4			—			4
Total interest expense	3,581			584			2,997			7,418			1,827			5,591			(932		)	(949		)	17
Net interest income	$	3,899		$	5,127		$	(1,228	)	$	13,037		$	12,780		$	257		$	(2,407	)	$	5,732		$	(8,139	)

(1) Changes attributable to the combined impact of volume and rate have been allocated proportionately to the change due to volume and the change due to rate.

(2) The tax-exempt income is ~~not recorded~~shown on a tax-equivalent basis.

(3) Nonaccrual loans have been included in the average balances.

The tax ~~effected~~equivalent net interest income ~~increased $13.1~~decreased $2.4 million, or ~~25.5%~~7.3%, to ~~$64.7~~$30.4 million for the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, from ~~$51.6~~$32.8 million for the same period in ~~2018.~~2019. Net interest income ~~increased~~decreased primarily due to ~~the growth~~a decline in ~~average earning assets including loans~~investment balances and decrease in rates on investments ~~acquired from SCB~~ and ~~First Bank.~~loans. The net interest margin decreased primarily due to a ~~higher cost of deposits and borrowings offset by higher yields~~lower interest rates on loans and ~~investments and additional accretion income from the acquisitions.~~investments.

For the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, average earning assets ~~increased~~decreased by ~~$705.0~~$64.9 million, or ~~25.3%~~1.8%, and average interest-bearing liabilities ~~increased $527.2~~decreased $116.0 million or ~~24.2%~~4.2%, compared with average balances for the same period in ~~2018~~2019.

5753

The changes in average balances for these periods are shown below:

Average interest-bearing deposits with other financial institutions ~~increased $80.0~~decreased $88.4 million or ~~469.1%~~78.8%.

Average federal funds sold increased ~~$0.1~~$0.3 million or ~~22.1%~~39.7%.

Average certificates of deposits investments ~~increased~~decreased $~~4.9~~2.3 million or ~~234.4%~~31.1%

Average loans increased by ~~$492.0~~$80.2 million or ~~23.4%~~3.1%.

Average securities ~~increased~~decreased by ~~$127.9~~$54.7 million or ~~19.2%~~7.1%.

Average interest-bearing customer deposits ~~increased~~decreased by ~~$490.4~~$122.5 million or ~~25.8%~~5.1%.

Average securities sold under agreements to repurchase increased by ~~$13.1~~$20.2 million or ~~8.4%~~11.1%.

Average borrowings and other debt ~~increased~~decreased by ~~$23.7~~$13.7 million or ~~19.3%~~8.8%.

Net interest margin decreased to ~~3.69%~~3.51% for the first ~~six~~three months of ~~2019~~2020 from ~~3.73%~~3.74% for the first ~~six~~three months of ~~2018~~2019.

Provision for Loan Losses

The provision for loan losses for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ was ~~$1,038,000~~$5,481,000 and ~~$2,932,000,~~$947,000, respectively. The ~~decrease~~increase in provision expense was primarily due to a ~~decrease~~one-time adjustment for the adoption of ASU 2016-13 $1.7 million and an increase in ~~loan volume.~~expected losses due to impacts of COVID-19. Net charge-offs were ~~$868,000~~$1,188,000 for the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, compared to net charge offs of ~~$864,000~~$432,000 for ~~June 30, 2018.~~March 31, 2019. Nonperforming loans were ~~$25.8~~$24.5 million and ~~$24.7~~$26.0 million as of ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. For information on loan loss experience and nonperforming loans, see discussion under the “Nonperforming Loans” and “Loan Quality and Allowance for Loan Losses” sections below.

Other Income

An important source of the Company’s revenue is other income. The following table sets forth the major components of other income for the three ~~and six~~-months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands):


	Three months ended June 30,							Six months ended June 30,							Three months ended March 31,
	2019		2018		$ Change			2019		2018		$ Change			2020		2019		$ Change
Wealth management revenues	$	3,587	$	1,599	$	1,988		$	7,232	$	3,341	$	3,891		$	3,626	$	3,645	$	(19	)
Insurance commissions	3,760		838		2,922			9,315		2,325		6,990			6,621		5,555		1,066
Service charges	1,959		1,803		156			3,761		3,438		323			1,778		1,802		(24		)
Security gains, net	218		881		(663		)	272		901		(629		)	531		54		477
Mortgage banking revenue, net	346		410		(64		)	585		571		14			308		239		69
ATM / debit card revenue	2,202		1,860		342			4,218		3,464		754			1,987		2,016		(29		)
Bank Owned Life Insurance	447		315		132			877		591		286			431		430		1
Other	1,069		655		414			1,967		1,217		750			1,228		898		330
Total other income	$	13,588	$	8,361	$	5,227		$	28,227	$	15,848	$	12,379		$	16,510	$	14,639	$	1,871

Following are explanations of the changes in these other income categories for the three months ended ~~June 30, 2019~~March 31, 2020 compared to the same period in ~~2018:~~2019:

Wealth management revenues ~~increased $1,988,000~~decreased $19,000 or ~~124.3%~~0.5% to ~~$3,587,000~~$3,626,000 from ~~$1,599,000~~$3,645,000 primarily ~~from increases~~due to decreases in market value and revenue from defined contribution and other retirement accounts, an increase in revenue from brokerage accounts from new business development efforts, and farm management and brokerage services and additional trust accounts added with the acquisition of SCB.value.

Insurance commissions increased ~~$2,922,000~~$1,066,000 or ~~348.7%~~19.2% to ~~$3,760,000~~$6,621,000 from ~~$838,000~~$5,555,000 primarily due to an increase in insurance activities and ~~revenues following the acquisition of SCB.~~revenues.

Fees from service charges ~~increased $156,000~~decreased $24,000 or ~~8.7%~~1.3% to ~~$1,959,000~~$1,778,000 from ~~$1,803,000~~$1,802,000 primarily due to ~~additional income from SCB transactions offset by~~ a decrease in ~~service charges based on the number of deposit transactions.~~

~~The sale of securities during the three months ended June 30, 2019 resulted in net securities gains of $218,000 compared to $881,000 during the three months ended June 30, 2018.~~

~~Mortgage banking income decreased $64,000 or 15.6% to $346,000 from $410,000. Loans sold balances were as follows:~~

~~$22.0 million (representing 168 loans) for the three months ended June 30, 2019~~

~~$16.9 million (representing 136 loans) for the three months ended June 30, 2018~~

~~First Mid Bank generally releases the servicing rights on loans sold into the secondary market.~~

Revenue from ATMs and debit cards increased $342,000 or 18.4% to $2,202,000 from $1,860,000 primarily due to an increase in electronic transactions from the SCB and First Bank acquisitions that occurred in the second and fourth quarters of 2018, respectively.

Bank owned life insurance income increased $132,000 or 41.9%. The Company acquired $8.6 million in bank owned life insurance from First Bank acquisition in the second quarter of 2018, and acquired $13.6 million in bank owned life insurance from SCB acquisition in the fourth quarter of 2018.

~~Other income increased $414,000 or 63.2% to $1,069,000 from $655,000 primarily due to increases in miscellaneous fees and revenues from SCB and First Bank acquisitions.~~

~~Following are explanations of the changes in these other income categories for the six months ended June 30, 2019 compared to the same period in~~ ~~2018~~:

Wealth management revenues increased $3,891,000 or 116.5% to $7,232,000 from $3,341,000 primarily from increases in market value and revenue from defined contribution and other retirement accounts, an increase in revenue from brokerage accounts from new business development efforts, and farm management and brokerage services and additional trust accounts added with the acquisition of SCB.

~~Insurance commissions increased $6,990,000 or 300.6% to $9,315,000 from $2,325,000 primarily due to an increase in insurance activities and revenues following the acquisition of SCB.~~

~~Fees from service charges increased $323,000 or 9.4% to $3,761,000 from $3,438,000 primarily due to additional income from SCB transactions offset by a decrease in service charges based on~~ the number of deposit transactions.

The sale of securities during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 resulted in net securities gains of ~~$272,000~~$531,000 compared to ~~$901,000~~$54,000 during the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019.

Mortgage banking income increased ~~$14,000~~$69,000 or ~~2.5%~~28.9% to ~~$585,000~~$308,000 from ~~$571,000.~~$239,000. Loans sold balances were as follows:

$~~34.4~~20.6 million (representing ~~270~~151 loans) for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020

$~~28.4~~12.4 million (representing ~~222~~102 loans) for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019

First Mid Bank generally releases the servicing rights on loans sold into the secondary market.

Revenue from ATMs and debit cards ~~increased $754,000~~decreased $29,000 or ~~21.8%~~1.4% to ~~$4,218,000~~$1,987,000 from ~~$3,464,000~~$2,016,000 primarily due to an ~~increase~~decrease in electronic ~~transactions from the SCB and First Bank acquisitions that occurred in the second and fourth quarters of 2018, respectively.~~transactions.

Bank owned life insurance income increased ~~$286,000~~$1,000 or ~~48.4%~~0.2%. The Company acquired $8.6 million in bank owned life insurance from First Bank acquisition in the second quarter of 2018, and acquired $13.6 million in bank owned life insurance from SCB acquisition in the fourth quarter of 2018.

Other income increased ~~$750,000~~$330,000 or ~~61.6%~~36.7% to ~~$1,967,000~~$1,228,000 from ~~$1,217,000~~$898,000 primarily due ~~to increases in miscellaneous fees and revenues~~fee income received from ~~SCB and First Bank acquisitions.~~

derivatives transactions.

Other Expense

The following table sets forth the major components of other expense for the three ~~and six~~-months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands):

Three months ended June 30, Six months ended June 30,
2019 2018 $ Change 2019 2018 $ Change
Salaries and employee benefits $ 15,565
$ 11,057
$ 4,508
$ 32,139
$ 21,251
$ 10,888
Net occupancy and equipment expense 4,543
3,505
1,038
8,998
6,778
2,220
Net other real estate owned expense 188
7
181
241
83
158
FDIC insurance 197
285
(88 ) 476
566
(90 )
Amortization of intangible assets 1,823
716
1,107
3,179
1,221
1,958
Stationery and supplies 264
186
78
551
397
154
Legal and professional 1,304
1,717
(413 ) 2,498
2,854
(356 )
Marketing and donations 481
431
50
935
785
150
Other operating expenses 5,822
2,892
2,930
9,480
5,235
4,245
Total other expense $ 30,187
$ 20,796
$ 9,391
$ 58,497
$ 39,170
$ 19,327

~~Following are explanations for the changes in these other expense categories for the three months ended June 30, 2019 compared to the same period in 2018:~~

Salaries and employee benefits, the largest component of other expense, increased $4,508,000 or 40.8% to $15,565,000 from $11,057,000. The increase is primarily due to additional employees from the First Bank acquisition in the second quarter of 2018, additional employees from SCB acquisition in the fourth quarter of 2018, and merit increases in 2019 for continuing employees during the first quarter of 2019. There were 826 and 711 full-time equivalent employees at June 30, 2019 and 2018, respectively.

Occupancy and equipment expense increased $1,038,000 or 29.6% to $4,543,000 from $3,505,000. The increase was primarily due to increases maintenance and repair expense, rent expense, and building insurance related to the acquisitions of First Bank and SCB.

Net other real estate owned expense increased $181,000 or 2,585.7% to $188,000 from $7,000. The increase in 2019 was primarily due to more losses on properties sold during 2019 than properties sold during 2018.

Expense for amortization of intangible assets increased $1,107,000 or 154.6% to $1,823,000 from $716,000 for the three months ended June 30, 2019 and 2018, respectively. The increase in 2019 was due to amortization of additional core deposit intangibles from the First Bank and SCB acquisition, customer list intangibles from the SCB acquisition and a mortgage servicing rights impairment reserve recorded.

Other operating expenses increased $2,930,000 or 101.3% to $5,822,000 in 2019 from $2,892,000 in 2018 primarily due to an increase in loan collection expenses and costs associated with the merger of SCB into First Mid Bank.

On a net basis, all other categories of operating expenses decreased $373,000 or 14.2% to $2,246,000 in 2019 from $2,619,000 in 2018. The decrease is primarily due to decreases in FDIC insurance expense and legal and professional expenses.



	Three months ended March 31,
	2020			2019		$ Change
Salaries and employee benefits	$	16,500		$	16,574	$	(74	)
Net occupancy and equipment expense	4,242			4,455		(213		)
Net other real estate owned expense	(46		)	53		(99		)
FDIC insurance	93			279		(186		)
Amortization of intangible assets	1,295			1,356		(61		)
Stationery and supplies	268			287		(19		)
Legal and professional	1,398			1,194		204
Marketing and donations	481			454		27
ATM/debit card expense	605			803		(198		)
Other operating expenses	2,912			2,855		57
Total other expense	$	27,748		$	28,310	$	(562	)

Following are explanations for the changes in these other expense categories for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 compared to the same period in ~~2018~~2019:

Salaries and employee benefits, the largest component of other expense, ~~increased $10,888,000~~decreased $74,000 or ~~51.2%~~0.4% to ~~$32,139,000~~$16,500,000 from ~~$21,251,000.~~$16,574,000. The ~~increase~~decrease is primarily due to ~~additional employees from the First Bank acquisition~~a decrease in ~~the second quarter of 2018, additional employees from SCB acquisition in the fourth quarter of 2018,~~bonus accrual due to lower expected achievement, offset by increases for merit raises and ~~merit increases in 2019 for continuing employees during the first quarter of 2019.~~applicable payroll taxes . There were ~~826~~835 and ~~711~~832 full-time equivalent employees at ~~June 30,~~March 31, 2020 and 2019, respectively.

Occupancy and ~~2018,~~equipment expense decreased $213,000 or 4.8% to $4,242,000 from $4,455,000. The decrease was primarily due to decreases for various maintenance and repair expenses.

Net other real estate owned expense decreased $99,000 or 186.8% to $46,000 net gains from $53,000 net losses. The decrease in 2020 was primarily due to more gains on properties sold during 2020 than properties sold during 2019.

Expense for amortization of intangible assets decreased $61,000 or 4.5% to $1,295,000 from $1,356,000 for the three months endedMarch 31, 2020 and 2019, respectively. The decrease in 2020 was due to less amortization for core deposit intangibles and a decrease in the amount of mortgage servicing rights impairment reserve recorded.

6055

Occupancy and equipment expense increased $2,220,000 or 32.8% to $8,998,000 from $6,778,000. The increase was primarily due to increases maintenance and repair expense, rent expense, and building insurance related to the acquisitions of First Bank and SCB.

Net other real estate owned expense increased $158,000 or 190.4% to $241,000 from $83,000. The increase in 2019 was primarily due to more losses on properties sold during 2019 than properties sold during 2018.

~~Expense for amortization of intangible assets increased $1,958,000 or 160.4% to $3,179,000 from $1,221,000 for the~~ ~~six months endedJune 30, 2019 and 2018~~, respectively. The increase in 2019 was due to amortization of additional core deposit intangibles from the First Bank and SCB acquisition, customer list intangibles from the SCB acquisition and a mortgage servicing rights impairment reserve recorded.

Other operating expenses increased ~~$4,245,000~~$57,000 or ~~81.1%~~2.0% to ~~$9,480,000~~$2,912,000 in ~~2019~~2020 from ~~$5,235,000~~$2,855,000 in ~~2018~~2019 primarily due to an increase in data processing costs offset by decreases in loan collection expenses and ~~costs associated with the merger of SCB into First Mid Bank.~~acquisition costs.

On a net basis, all other categories of operating expenses decreased ~~$142,000~~$172,000 or ~~3.1%~~1.2% to ~~$4,460,000~~$2,845,000 in ~~2019~~2020 from ~~$4,602,000~~$3,017,000 in ~~2018~~2019. The ~~decrease~~increase is primarily due ~~to decreases FDIC insurance assessments and~~an increase in legal and professional ~~fees.~~expenses offset by a Small Bank Assessment credit from the FDIC.

Income Taxes

Total income tax expense amounted to ~~$8.0~~$3.2 million ~~(24.7%~~(24.1% effective tax rate) for the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, compared to ~~$6.0~~$4.3 million ~~(24.4%~~(24.5% effective tax rate) for the same period in ~~2018.~~2019.

The Company files U.S. federal and state of Illinois, Indiana, and Missouri income tax returns. The Company is no longer subject to U.S. federal or state income tax examinations by tax authorities for years before ~~2016.~~

612017.

Analysis of Balance Sheets

Securities

The Company’s overall investment objectives are to insulate the investment portfolio from undue credit risk, maintain adequate liquidity, insulate capital against changes in market value and control excessive changes in earnings while optimizing investment performance. The types and maturities of securities purchased are primarily based on the Company’s current and projected liquidity and interest rate sensitivity positions. The following table sets forth the amortized cost of the available-for-sale and held-to-maturity securities as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (dollars in thousands):


	June 30, 2019				December 31, 2018				March 31, 2020				December 31, 2019
	Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	261,523	2.39	%	$	270,816	2.38	%	$	80,630	2.34	%	$	175,970	2.39	%
Obligations of states and political subdivisions	181,353		2.96	%	193,195		2.94	%	167,146		2.99	%	172,460		2.98	%
Mortgage-backed securities: GSE residential	370,752		2.83	%	304,372		2.86	%	385,194		2.51	%	391,307		2.79	%
Other securities	3,278		3.63	%	2,278		3.58	%	2,028		3.83	%	4,028		3.44	%
Total securities	$	816,906	2.72	%	$	770,661	2.72	%	$	634,998	2.62	%	$	743,765	2.83	%

At ~~June 30, 2019,~~March 31, 2020, the Company’s investment portfolio ~~increased~~decreased by ~~$46.2~~$108.8 million from December 31, ~~2018~~2019. due to an increase in called securities following declines in interest rates. When purchasing investment securities, the Company considers its overall liquidity and interest rate risk profile, as well as the adequacy of expected returns relative to the risks assumed.

The table below presents the credit ratings as of ~~June 30, 2019~~March 31, 2020 for certain investment securities (in thousands):


	Amortized Cost		Estimated Fair Value			Average Credit Rating of Fair Value at June 30, 2019 (1)																	Amortized Cost				Estimated Fair Value			Average Credit Rating of Fair Value at March 31, 2020 (1)
	Amortized Cost				AAA			AA +/-			A +/-			BBB +/-			< BBB -			Not rated						AAA				AA +/-			A +/-			BBB +/-			< BBB -			Not rated
Available-for-sale:			Estimated Fair Value																								Estimated Fair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	192,035	$	193,424		$	—		$	193,424		$	—		$	—		$	—		$	—	Amortized Cost	$	56,067			$	56,689		$	—		$	56,689		$	—		$	—		$	—		$	—
Obligations of state and political subdivisions	181,353		186,229			17,338			119,839			46,946			504			—			1,602		167,146				163,502			16,372			105,653			40,302			—			—			1,175
Mortgage-backed securities (2)	370,752		374,646			1,055			—			—			—			—			373,591		385,194				395,511			1,039			—			—			—			—			394,472
Other securities	3,278		3,391			—			—			—			2,007			—			1,384		2,028				2,099			—			—			—			—			—			2,099
Total available-for-sale	$	747,418	$	757,690		$	18,393		$	313,263		$	46,946		$	2,511		$	—		$	376,577	$	610,435			$	617,801		$	17,411		$	162,342		$	40,302		$	—		$	—		$	397,746
Held-to-maturity:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	69,488	$	69,441		$	—		$	69,441		$	—		$	—		$	—		$	—	$	24,563			$	24,806		$	—		$	24,806		$	—		$	—		$	—		$	—

(1) Credit ratings reflect the lowest current rating assigned by a nationally recognized credit rating agency.

(2) Mortgage-backed securities include mortgage-backed securities (MBS) and collateralized mortgage obligation (CMO) issues from the following government sponsored enterprises: FHLMC, FNMA, GNMA and FHLB. While MBS and CMOs are no longer explicitly rated by credit rating agencies, the industry recognizes that they are backed by agencies which have an implied government guarantee.

Other-than-temporary Impairment of Securities

Declines in the fair value, or unrealized losses, of all available for sale investment securities, are reviewed to determine whether the losses are either a temporary impairment or OTTI. Temporary adjustments are recorded when the fair value of a security fluctuates from its historical cost. Temporary adjustments are recorded in accumulated other comprehensive income, and impact the Company’s equity position. Temporary adjustments do not impact net income. A recovery of available for sale security prices also is recorded as an adjustment to other comprehensive income for securities that are temporarily impaired, and results in a positive impact to the Company’s equity position.

OTTI is recorded when the fair value of an available for sale security is less than historical cost, and it is probable that all contractual cash flows will not be collected. Investment securities are evaluated for OTTI on at least a quarterly basis. In conducting this assessment, the Company evaluates a number of factors including, but not limited to:

how much fair value has declined below amortized cost;

how long the decline in fair value has existed;

the financial condition of the issuers;

contractual or estimated cash flows of the security;

underlying supporting collateral;

past events, current conditions and forecasts;

significant rating agency changes on the issuer; and

the Company’s intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.

If the Company intends to sell the security or if it is more likely than not the Company will be required to sell the security before recovery of its amortized cost basis, the entire amount of OTTI is recorded to noninterest income, and therefore, results in a negative impact to net income. Because the available for sale securities portfolio is recorded at fair value, the conclusion as to whether an investment decline is other-than-temporarily impaired, does not significantly impact the Company’s equity position, as the amount of the temporary adjustment has already been reflected in accumulated other comprehensive income/loss.

If the Company does not intend to sell the security and it is not more-likely-than-not it will be required to sell the security before recovery of its amortized cost basis, only the amount related to credit loss is recognized in earnings. In determining the portion of OTTI that is related to credit loss, the Company compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. The remaining portion of OTTI, related to other factors, is recognized in other comprehensive earnings, net of applicable taxes.

The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value are not necessarily favorable, or that there is a general lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. See Note 3 -- Investment Securities in the Notes to Condensed Consolidated Financial Statements (unaudited) for a discussion of the Company’s evaluation and subsequent charges for OTTI.

Loans

The loan portfolio ~~(net of unearned interest)~~ is the largest category of the Company’s earning assets. The following table summarizes the composition of the loan portfolio at amortized cost, including loans held for sale, as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):


									March 31, 2020				December 31, 2019
	June 30, 2019		% Outstanding Loans		December 31, 2018		% Outstanding Loans		Amortized Cost		% Outstanding Loans		Amortized Cost		% Outstanding Loans
Construction and land development	$	57,069	2.2	%	$	50,619	1.9	%	$	123,326	4.5	%	$	94,142	3.5	%
Agricultural real estate	229,924		9.0	%	231,700		8.8	%	242,891		8.9	%	240,241		8.9	%
1-4 Family residential properties	355,143		13.9	%	373,518		14.1	%	325,128		11.8	%	336,427		12.5	%
Multifamily residential properties	167,709		6.6	%	184,051		7.0	%	139,734		5.1	%	153,948		5.7	%
Commercial real estate	888,711		35.1	%	906,850		34.2	%	1,002,868		36.5	%	995,702		36.9	%
Loans secured by real estate	1,698,556		66.8	%	1,746,738		66.0	%	1,833,947		66.8	%	1,820,460		67.5	%
Agricultural loans	118,216		4.6	%	135,877		5.1	%	139,136		5.1	%	136,124		5.1	%
Commercial and industrial loans	530,405		20.8	%	557,011		21.1	%	565,789		20.6	%	528,973		19.6	%
Consumer loans	84,907		3.3	%	91,516		3.5	%	82,104		3.0	%	83,183		3.1	%
All other loans	114,459		4.5	%	113,377		4.3	%	123,322		4.5	%	126,607		4.7	%
Total loans	$	2,546,543	100.0	%	$	2,644,519	100.0	%	$	2,744,298	100.0	%	$	2,695,347	100.0	%

~~Gross loan~~Loan balances ~~decreased $98.0~~increased $49.0 million, or 3.70% primarily due to seasonal declines in agricultural loans of about $17.6 million and declines in commercial and industrial loans of approximately $26.6 million, 1-4 Family residential properties of approximately $18.3 million, commercial real estate $18.1 million, multifamily residential properties of approximately $16.3 million primarily due to acquired loans becoming paid off.1.82%. The balance of real estate loans held for sale, included in the balances shown above, amounted to ~~$1,717,000~~$1.3 million and ~~$1,508,000~~$1.8 million as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019, respectively.

Commercial and commercial real estate loans generally involve higher credit risks than residential real estate and consumer loans. Because payments on loans secured by commercial real estate or equipment are often dependent upon the successful operation and management of the underlying assets, repayment of such loans may be influenced to a great extent by conditions in the market or the economy. The Company does not have any sub-prime mortgages or credit card loans outstanding which are also generally considered to be higher credit risk.

The following table summarizes the loan portfolio geographically by branch region as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (dollars in thousands):


	June 30, 2019				December 31, 2018				March 31, 2020				December 31, 2019
	Principal balance		% Outstanding Loans		Principal balance		% Outstanding loans		Principal balance		% Outstanding Loans		Principal balance		% Outstanding loans
Central region	$	544,426	21.4	%	$	571,909	21.7	%	$	617,145	22.5	%	$	568,256	21.1	%
Sullivan region	384,967		15.1	%	375,407		14.2	%	391,171		14.3	%	404,169		15.0	%
Decatur region	596,906		23.5	%	501,743		19.0	%	615,351		22.4	%	602,716		22.3	%
Peoria region	377,208		14.8	%	291,283		11.0	%	448,509		16.3	%	443,526		16.5	%
Highland region	519,882		20.4	%	518,881		19.6	%	556,374		20.3	%	547,156		20.3	%
Southern region	123,154		4.8	%	133,225		5.0	%	115,748		4.2	%	129,524		4.8	%
Soy Capital Bank	—		—	%	252,071		9.5	%
Total all regions	$	2,546,543	100.0	%	$	2,644,519	100.0	%	$	2,744,298	100.0	%	$	2,695,347	100.0	%

Loans are geographically dispersed among these regions located in central and southwestern Illinois. While these regions have experienced some economic stress during ~~2019~~2020 and ~~2018,~~2019, the Company does not consider these locations high risk areas since these regions have not experienced the significant declines in real estate values seen in some other areas in the United States.

The Company does not have a concentration, as defined by the regulatory agencies, in construction and land development loans or commercial real estate loans as a percentage of total risk-based capital for the periods shown above. At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019, the Company did have industry loan concentrations in excess of 25% of total risk-based capital in the following industries (dollars in thousands):


	June 30, 2019				December 31, 2018				March 31, 2020				December 31, 2019
	Principal balance		% Outstanding Loans		Principal balance		% Outstanding Loans		Principal balance		% Outstanding Loans		Principal balance		% Outstanding Loans
Other grain farming	$	264,140	10.37	%	$	276,142	10.44	%	$	309,400	11.27	%	$	301,469	11.18	%
Lessors of non-residential buildings	235,032		9.23	%	250,495		9.47	%	294,577		10.73	%	300,611		11.15	%
Lessors of residential buildings & dwellings	288,422		11.33	%	289,169		10.93	%	280,895		10.24	%	284,378		10.55	%
Other gambling industries									123,420		4.50	%	90,429		3.36	%
Hotels and motels	127,094		4.99	%	129,216		4.89	%	119,676		4.36	%	120,735		4.48	%
Other Gambling Industries	90,060		3.54	%	105,959		3.98	%
Nursing care facilities (skilled nursing)									108,661		3.96	%	92,452		3.43	%

~~Concentration in other gambling industries is~~

The concentration of nursing care facilities was less than 25% of total risk-based capital as of ~~June 30,~~December 31, 2019 ~~but~~however is ~~included~~shown for comparative purposes. The Company had no further industry loan concentrations in excess of 25% of total risk-based capital.

The following table presents the balance of loans outstanding as of ~~June 30, 2019,~~March 31, 2020, by contractual maturities (in thousands):


	Maturity (1)								Maturity (1)
	One year or less(2)		Over 1 through 5 years		Over 5 years		Total		One year or less(2)		Over 1 through 5 years		Over 5 years		Total
Construction and land development	$	22,089	$	12,157	$	22,823	$	57,069	$	39,619	$	39,093	$	44,614	$	123,326
Agricultural real estate	14,637		78,818		136,469		229,924		20,859		71,113		150,919		242,891
1-4 Family residential properties	26,975		70,871		257,297		355,143		19,064		66,368		239,696		325,128
Multifamily residential properties	11,254		111,814		44,641		167,709		16,960		82,118		40,656		139,734
Commercial real estate	67,152		390,431		431,128		888,711		91,691		423,473		487,704		1,002,868
Loans secured by real estate	142,107		664,091		892,358		1,698,556		188,193		682,165		963,589		1,833,947
Agricultural loans	96,060		18,737		3,419		118,216		104,047		30,666		4,423		139,136
Commercial and industrial loans	200,366		251,890		78,149		530,405		195,633		291,152		79,004		565,789
Consumer loans	4,731		70,554		9,622		84,907		4,887		62,524		14,693		82,104
All other loans	14,208		30,491		69,760		114,459		16,734		32,466		74,122		123,322
Total loans	$	457,472	$	1,035,763	$	1,053,308	$	2,546,543	$	509,494	$	1,098,973	$	1,135,831	$	2,744,298

(1) Based upon remaining contractual maturity.

(2) Includes demand loans, past due loans and overdrafts.

As of ~~June 30, 2019,~~March 31, 2020, loans with maturities over one year consisted of approximately ~~$1.5~~$1.7 billion in fixed rate loans and approximately ~~$542~~$575 million in variable rate loans. The loan maturities noted above are based on the contractual provisions of the individual loans. The Company has no general policy regarding renewals and borrower requests, which are handled on a case-by-case basis.

Nonperforming Loans and Nonperforming Other Assets

Nonperforming loans include: (a) loans accounted for on a nonaccrual basis; (b) accruing loans contractually past due ninety days or more as to interest or principal payments; and (c) loans not included in (a) and (b) above which are defined as “troubled debt restructurings”. Repossessed assets include primarily repossessed real estate and automobiles.

The Company’s policy is to discontinue the accrual of interest income on any loan for which principal or interest is ninety days past due. The accrual of interest is discontinued earlier when, in the opinion of management, there is reasonable doubt as to the timely collection of interest or principal. Once interest accruals are discontinued, accrued but uncollected interest is charged against current year income. Subsequent receipts on non-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal.

Restructured loans are loans on which, due to deterioration in the borrower’s financial condition, the original terms have been modified in favor of the borrower or either principal or interest has been forgiven. Repossessed assets represent property acquired as the result of borrower defaults on loans. These assets are recorded at estimated fair value, less estimated selling costs, at the time of foreclosure or repossession. Write-downs occurring at foreclosure are charged against the allowance for loan losses. On an ongoing basis, properties are appraised as required by market indications and applicable regulations. Write-downs for subsequent declines in value are recorded in non-interest expense in other real estate owned along with other expenses related to maintaining the properties.

The following table presents information concerning the aggregate amount of nonperforming loans and repossessed assets at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):


	June 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Nonaccrual loans	$	22,994		$	27,298		$	21,787		$	25,118
Restructured loans which are performing in accordance with revised terms	2,779			2,451			2,676			2,700
Total nonperforming loans	25,773			29,749			24,463			27,818
Repossessed assets	3,607			2,595			2,843			3,720
Total nonperforming loans and repossessed assets	$	29,380		$	32,344		$	27,306		$	31,538
Nonperforming loans to loans, before allowance for loan losses	1.01		%	1.12		%	0.89		%	1.03		%
Nonperforming loans and repossessed assets to loans, before allowance for loan losses	1.15		%	1.22		%	1.00		%	1.17		%

The ~~$4,304,000~~$3,331,000 decrease in nonaccrual loans during ~~2019~~2020 resulted from the net of ~~$6,972,000~~$1,950,000 of loans put on nonaccrual status offset by ~~$9,093,000~~$3,937,000 of loans becoming current or paid-off, ~~$1,629,000~~$184,000 of loans transferred to other real estate and ~~$554,000~~$1,160,000 of loans charged off.

The following table summarizes the composition of nonaccrual loans (in thousands):


	June 30, 2019				December 31, 2018				March 31, 2020				December 31, 2019
	Balance		% of Total		Balance		% of Total		Balance		% of Total		Balance		% of Total
Construction and land development	$	46	0.2	%	$	377	1.4	%	$	39	0.2	%	$	41	0.2	%
Agricultural real estate	291		1.3	%	309		1.1	%	569		2.6	%	479		1.9	%
1-4 Family residential properties	7,150		31.1	%	5,762		21.1	%	7,416		34.0	%	7,379		29.3	%
Multifamily Residential properties	1,574		6.8	%	2,105		7.7	%	3,104		14.2	%	3,137		12.5	%
Commercial real estate	5,876		25.6	%	8,457		31.1	%	4,351		20.0	%	4,351		17.3	%
Loans secured by real estate	14,937		65.0	%	17,010		62.4	%	15,479		71.0	%	15,387		61.2	%
Agricultural loans	778		3.4	%	667		2.4	%	822		3.8	%	769		3.1	%
Commercial and industrial loans	6,584		28.6	%	8,990		32.9	%	4,994		22.9	%	8,441		33.6	%
Consumer loans	695		3.0	%	625		2.3	%	492		2.3	%	521		2.1	%
All Other Loans	—		—	%	6		—	%
Total loans	$	22,994	100.0	%	$	27,298	100.0	%	$	21,787	100.0	%	$	25,118	100.0	%

Interest income that would have been reported if nonaccrual and restructured loans had been performing totaled ~~$1,335,000~~$1,029,000 and ~~$758,000~~$1,097,000 for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~, respectively.

The ~~$1,012,000 increase~~$877,000 decrease in repossessed assets during the first ~~six~~three months of ~~2019~~2020 resulted from ~~$1,751,000~~$201,000 of additional assets repossessed ~~$14,000 of write downs on assets held,~~ and ~~$725,000~~$1,078,000 of repossessed assets sold. The following table summarizes the composition of repossessed assets (in thousands):


	June 30, 2019				December 31, 2018				March 31, 2020				December 31, 2019
	Balance		% of Total		Balance		% of Total		Balance		% of Total		Balance		% of Total
Construction and land development	$	1,513	41.9	%	$	1,513	58.2	%	$	1,769	62.2	%	$	1,826	49.1	%
1-4 family residential properties	174		4.8	%	583		22.5	%	61		2.1	%	1,024		27.6	%
Multi-family residential properties									64		2.3	%	64		1.7	%
Commercial real estate	1,882		52.2	%	438		16.9	%	890		31.3	%	730		19.6	%
Total real estate	3,569		98.9	%	2,534		97.6	%	2,784		97.9	%	3,644		98.0	%
Commercial & industrial loans	—		—	%	61		2.4	%	—		—	%	76		2.0	%
Consumer loans	38		1.1	%	—		—	%	59		2.1	%	—		—	%
Total repossessed collateral	$	3,607	100.0	%	$	2,595	100.0	%	$	2,843	100.0	%	$	3,720	100.0	%

Repossessed assets sold during the first ~~six~~three months of ~~2019~~2020 resulted in net ~~losses~~gains of ~~$63,000,~~$162,000, of which ~~$77,000~~$170,000 of net ~~losses~~gains was related to real estate asset sales, ~~and $14,000~~$8,000 of net ~~gains~~losses was related to other repossessed assets. Repossessed assets sold during the same period in ~~2018~~2019 resulted in net ~~losses~~gains of ~~$11,000,~~$5,000, of which ~~$23,000~~$6,000 of net losses was related to real estate asset sales and ~~$12,000~~$11,000 of net gains was related to other repossessed assets.

Loan Quality and Allowance for ~~Loan~~Credit Losses

The allowance for ~~loan~~credit losses represents management’s estimate of the reserve necessary to adequately account for probable losses existing in the current portfolio. The provision for loan losses is the charge against current earnings that is determined by management as the amount needed to maintain an adequate allowance for loan losses. In determining the adequacy of the allowance for loan losses, and therefore the provision to be charged to current earnings, management relies predominantly on a disciplined credit review and approval process that extends to the full range of the Company’s credit exposure. The review process is directed by overall lending policy and is intended to identify, at the earliest possible stage, borrowers who might be facing financial difficulty. Factors considered by management in evaluating the overall adequacy of the allowance include a migration analysis of the historical net loan losses by loan segment, the level and composition of nonaccrual, past due and renegotiated loans, trends in volumes and terms of loans, effects of changes in risk selection and underwriting standards or lending practices, lending staff changes, concentrations of credit, industry conditions and the current economic conditions in the region where the Company operates.

Management reviews economic factors including the potential for reduced cash flow for commercial operating loans from reduction in sales or increased operating costs, decreased occupancy rates for commercial buildings, reduced levels of home sales for commercial land developments, the uncertainty regarding grain prices, increased operating costs for farmers, and increased levels of unemployment and bankruptcy impacting consumer’s ability to pay. Each of these economic uncertainties was taken into consideration in developing the level of the reserve. Management considers the allowance for loan losses a critical accounting policy.

Management recognizes there are risk factors that are inherent in the Company’s loan portfolio. All financial institutions face risk factors in their loan portfolios because risk exposure is a function of the business. The Company’s operations (and therefore its loans) are concentrated in east central Illinois, an area where agriculture is the dominant industry. Accordingly, lending and other business relationships with agriculture-based businesses are critical to the Company’s success. At ~~June 30, 2019,~~March 31, 2020, the Company’s loan portfolio included ~~$348.6~~$381.6 million of loans to borrowers whose businesses are directly related to agriculture. Of this amount, ~~$264.1~~$309.4 million was concentrated in other grain farming. Total loans to borrowers whose businesses are directly related to agriculture ~~decreased $19.9~~increased $5.2 million from ~~$368.5~~$376.4 million at December 31, ~~2018~~2019 while loans concentrated in other grain farming ~~decreased $12.0~~increased $7.9 million from ~~$276.1~~$301.5 million at December 31, ~~2018.~~2019. While the Company adheres to sound underwriting practices, including collateralization of loans, any extended period of low commodity prices, drought conditions, significantly reduced yields on crops and/or reduced levels of government assistance to the agricultural industry could result in an increase in the level of problem agriculture loans and potentially result in loan losses within the agricultural portfolio. In addition, the Company has ~~$127.1~~$119.7 million of loans to motels and hotels. The performance of these loans is dependent on borrower specific issues as well as the general level of business and personal travel within the region. While the Company adheres to sound underwriting standards, a prolonged period of reduced business or personal travel could result in an increase in nonperforming loans to this business segment and potentially in loan losses. The

Company also has ~~$235.0~~$294.6 million of loans to lessors of non-residential buildings, ~~$288.4~~$280.9 million of loans to lessors of residential buildings and dwellings, and ~~$90.1~~$123.4 million of loans to other gambling industries.

The structure of the Company’s loan approval process is based on progressively larger lending authorities granted to individual loan officers, loan committees, and ultimately the Board of Directors. Outstanding balances to one borrower or affiliated borrowers are limited by federal regulation; however, limits well below the regulatory thresholds are generally observed. The vast majority of the Company’s loans are to businesses located in the geographic market areas served by the Company’s branch bank system. Additionally, a significant portion of the collateral securing the loans in the portfolio is located within the Company’s primary geographic footprint. In general, the Company adheres to loan underwriting standards consistent with industry guidelines for all loan segments.

The Company minimizes credit risk by adhering to sound underwriting and credit review policies. Management and the board of directors of the Company review these policies at least annually. Senior management is actively involved in business development efforts and the maintenance and monitoring of credit underwriting and approval. The loan review system and controls are designed to identify, monitor and address asset quality problems in an accurate and timely manner. The board of directors and management review the status of problem loans each month and formally determine a best estimate of the allowance for loan losses on a quarterly basis. In addition to internal policies and controls, regulatory authorities periodically review asset quality and the overall adequacy of the allowance for loan losses.

Analysis of the allowance for ~~loan~~credit losses as of ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ and of changes in the allowance for the three ~~and six~~ month periods ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ is as follows (dollars in thousands):

Three months ended June 30, Six months ended June 30,
2019 2018 2019 2018
Average loans outstanding, net of unearned income $ 2,563,960
$ 2,244,639
$ 2,593,226
$ 2,101,194
Allowance-beginning of period 26,704
20,771
26,189
19,977
Charge-offs:
Real estate-mortgage 172
588
280
780
Commercial, financial & agricultural 153
3
342
151
Installment 100
43
257
83
Other 117
85
231
181
Total charge-offs 542
719
1,110
1,195
Recoveries:

Real estate-mortgage 6
55
12
56
Commercial, financial & agricultural 15
(2 ) 45
121
Installment 27
11
55
35
Other 58
52
130
119
Total recoveries 106
116
242
331
Net charge-offs (recoveries) 436
603
868
864
Provision for loan losses 91
1,877
1,038
2,932
Allowance-end of period $ 26,359
$ 22,045
$ 26,359
$ 22,045
Ratio of annualized net charge-offs to average loans 0.07 % 0.11 % 0.07 % 0.08 %
Ratio of allowance for loan losses to loans outstanding (less unearned interest at end of period) 1.04 % 0.93 % 1.04 % 0.93 %
Ratio of allowance for loan losses to nonperforming loans 102 % 89 % 102 % 89 %



	Three months ended March 31,
	2020			2019
Average loans outstanding, net of unearned income	$	2,703,051		$	2,622,816
Allowance-December 31, 2019	26,911			26,189
Adjustment for Adoption of ASU 2013-16	1,672			—
Allowance - Beginning of period	28,583			26,189
Charge-offs:
1-4 Family Residential	196			130
Commercial Real Estate	84			56
Agricultural	—			9
Commercial & Industrial	972			104
Consumer	171			269
Total charge-offs	1,423			568
Recoveries:
1-4 Family Residential	62			8
Commercial Real Estate	5			—
Commercial & Industrial	23			28
Consumer	145			100
Total recoveries	235			136
Net charge-offs (recoveries)	1,188			432
Provision for loan losses	5,481			947
Allowance-end of period	$	32,876		$	26,704
Ratio of annualized net charge-offs to average loans	0.18		%	0.07		%
Ratio of allowance for credit losses to loans outstanding (at amortized cost)	1.20		%	1.03		%
Ratio of allowance for credit losses to nonperforming loans	134		%	103		%

The ratio of allowance for ~~loan~~credit losses to loans outstanding was ~~1.04%~~1.20% as of ~~June 30, 2019~~March 31, 2020 compared to ~~0.93%~~1.03% as of ~~June 30, 2018.~~March 31, 2019. The ratio of the allowance for ~~loan~~credit losses to nonperforming loans is ~~102%~~134% as of ~~June 30, 2019~~March 31, 2020 compared to ~~89%~~103% as of ~~June 30, 2018.~~March 31, 2019. The increase in this ratio is primarily due to ~~a greater~~the increase in the allowance for ~~loan~~credit losses ~~than the increase in non-performing loans~~ at ~~June 30, 2019~~March 31, 2020 compared to ~~June 30, 2018.~~March 31, 2019. This increase is primarily due to the impacts of COVID-19 on the operations and earnings of borrowers, as well as, increases in loan balances and net charge offs.

During the first three months of 2020, the Company had net charge-offs of $1,188,000 compared to net charge-offs of $432,000 in 2019. During the first three months of 2020, there was on significant charge off on one loan to a commercial borrower of $836,200. During the first three months of 2019, there were no significant charge offs.

6863

During the first six months of 2019, the Company had net charge-offs of $868,000 compared to net charge-offs of $864,000 in 2018. During the first six months of 2019, there was one significant charge off of one commercial real estate loan to a single borrower of $105,000. During the first six months of 2018 there were significant charge offs of two commercial loans to a single borrower of $126,000 and charge offs of two residential real estate loans to two borrowers of $376,000.

Deposits

Funding of the Company’s earning assets is substantially provided by a combination of consumer, commercial and public fund deposits. The Company continues to focus its strategies and emphasis on retail core deposits, the major component of funding sources. The following table sets forth the average deposits and weighted average rates for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ and for the year ended December 31, ~~2018~~2019 (dollars in thousands):


	Six months ended June 30, 2019				Six months ended June 30, 2018				Year ended December 31, 2018				Three months ended March 31, 2020				Three months ended March 31, 2019				Year ended December 31, 2019
	Average Balance		Weighted Average Rate		Average Balance		Weighted Average Rate		Average Balance		Weighted Average Rate		Average Balance		Weighted Average Rate		Average Balance		Weighted Average Rate		Average Balance		Weighted Average Rate
Demand deposits:
Non-interest-bearing	$	605,735	—	%	$	486,930	—	%	$	506,873	—	%	$	628,588	—	%	$	605,296	—	%	$	608,106	—	%
Interest-bearing	1,309,927		0.50	%	1,116,810		0.20	%	1,194,089		0.28	%	1,264,489		0.35	%	1,335,626		0.49	%	1,303,814		0.50	%
Savings	439,694		0.14	%	381,356		0.15	%	395,028		0.15	%	435,480		0.11	%	436,581		0.14	%	437,549		0.13	%
Time deposits	639,656		1.81	%	400,679		0.71	%	473,043		0.99	%	570,132		1.86	%	620,377		1.70	%	630,369		1.88	%
Total average deposits	$	2,995,012	0.63	%	$	2,385,775	0.25	%	$	2,569,033	0.33	%	$	2,898,689	0.54	%	$	2,997,880	0.59	%	$	2,979,838	0.64	%

The following table sets forth the high and low month-end balances for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ and for the year ended December 31, ~~2018~~2019 (in thousands):


	Six months ended June 30, 2019		Six months ended June 30, 2018		Year ended December 31, 2018		Three months ended March 31, 2020		Three months ended March 31, 2019		Year ended December 31, 2019
High month-end balances of total deposits	$	3,046,212	$	2,670,864	$	3,017,035	$	2,932,973	$	3,046,213	$	3,046,212
Low month-end balances of total deposits	2,961,660		2,208,941		2,208,941		2,873,260		2,961,660		2,917,366

During the first ~~six~~three months of ~~2019,~~2020, the average balance of deposits ~~increased~~decreased by ~~$426.0~~$81.1 million from the average balance for the year ended December 31, ~~2018~~2019. Average non-interest bearing deposits increased by ~~$98.9~~$20.5 million, average interest-bearing balances ~~increased~~decreased by ~~$115.8~~$39.3 million, savings account balances ~~increased $44.7~~decreased $2.1 million and balances of time deposits ~~increased $166.6~~decreased $60.2 million. The increases were primarily due to the result of deposit balances acquired in the acquisitions of First Bank during the second quarter of 2018 and SCB during the fourth quarter of 2018 that were held for the full six months of 2019.

Balances of time deposits of $100,000 or more include time deposits maintained for public fund entities and consumer time deposits. The following table sets forth the maturity of time deposits of $100,000 or more at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):


	June 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
3 months or less	$	55,851	$	44,898	$	105,158	$	81,910
Over 3 through 6 months	51,913		49,476		40,470		55,495
Over 6 through 12 months	121,117		78,567		85,461		95,725
Over 12 months	161,134		155,071		99,016		107,861
Total	$	390,015	$	328,012	$	330,105	$	340,991

6964

Repurchase Agreements and Other Borrowings

Securities sold under agreements to repurchase are short-term obligations of First Mid Bank. These obligations are collateralized with certain government securities that are direct obligations of the United States or one of its agencies. These retail repurchase agreements are offered as a cash management service to its corporate customers. Other borrowings consist of Federal Home Loan Bank (“FHLB”) advances, federal funds purchased, loans (short-term or long-term debt) that the Company has outstanding and junior subordinated debentures.

Information relating to securities sold under agreements to repurchase and other borrowings as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 is presented below (dollars in thousands):


	June 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Securities sold under agreements to repurchase	$	152,264		$	192,330		$	231,649		$	208,109
Federal Home Loan Bank advances:
Fixed term – due in one year or less	60,887			29,000			44,921			39,000
Fixed term – due after one year	34,939			90,745			75,000			74,895
Debt:
Other borrowings
Fed funds							—			5,000
Debt due in one year or less							5,000			—
Debt due after one year	—			7,724			—			—
Junior subordinated debentures	29,084			29,000			18,900			18,858
Total	$	277,174		$	348,799		$	375,470		$	345,862
Average interest rate at end of period	1.73		%	1.30		%	0.75		%	1.08		%
Maximum outstanding at any month-end:
Securities sold under agreements to repurchase	$	191,557		$	192,330		$	231,649		$	208,109
Federal funds purchased	—			22,000
Federal Home Loan Bank advances:
FHLB-Overnight	—			30,000			—			25,000
Fixed term – due in one year or less	65,873			29,000			59,904			66,000
Fixed term – due after one year	54,932			101,745			75,000			74,895
Debt:
Other borrowings
Federal funds purchased							8,000			5,000
Debt due in one year or less							5,000			—
Debt due after one year	6,549			10,313			—			6,549
Junior subordinated debentures	29,084			30,221			18,900			29,126
Averages for the period (YTD):
Securities sold under agreements to repurchase	$	168,090		$	140,622		$	202,693		$	169,437
Federal funds purchased	58			3,794
Federal Home Loan Bank advances:
FHLB-overnight	—			9,434			7,363			7,148
Fixed term – due in one year or less	47,928			16,510			27,893			63,151
Fixed term – due after one year	65,942			71,757			84,890			39,331
Debt:
Other borrowings
Federal funds purchased							2,110			616
Loans due in one year or less	—			548			769			—
Loans due after one year	3,680			9,555			—			1,825
Junior subordinated debentures	29,035			27,391			18,873			26,649
Total	$	314,733		$	279,611		$	344,591		$	308,157
Average interest rate during the period	1.74		%	1.52		%	1.17		%	1.66		%

7065

Securities sold under agreements to repurchase ~~decreased $40.1~~increased $23.5 million during the first ~~six~~three months of ~~2019~~2020 primarily due to the ~~seasonal declines in balances and~~ cash flow needs of various customers. FHLB advances represent borrowings by First Mid Bank to economically fund loan demand.

At ~~June 30, 2019~~March 31, 2020 the fixed term advances consisted of ~~$96~~$120 million as follows:

~~$10 million advance with a 11-month maturity, at 2.81%, due August 30, 2019~~

~~$5 million advance with a 15-month maturity, at 2.63%, due September 27, 2019~~



Advance		Term (in years)	Interest Rate	Maturity Date
$	5,000,000	4	1.79%	04/13/2020
10,000,000		1.5	2.95%	05/29/2020
5,000,000		2	2.75%	06/26/2020
5,000,000		3	1.75%	07/31/2020
5,000,000		6	2.3%	08/24/2020
5,000,000		3.5	1.83%	02/01/2021
5,000,000		5	1.85%	04/12/2021
5,000,000		7	2.55%	10/01/2021
5,000,000		5	2.71%	03/21/2022
5,000,000		8	2.4%	01/09/2023
5,000,000		3.5	1.51%	07/31/2023
5,000,000		3.5	0.77%	09/11/2023
10,000,000		5	1.45%	12/31/2024
5,000,000		5	0.91%	03/10/2025
5,000,000		10	1.14%	10/03/2029
5,000,000		10	1.15%	10/03/2029
5,000,000		10	1.12%	10/03/2029
10,000,000		10	1.39%	12/31/2029
15,000,000		10	1.41%	12/31/2029

~~$2 million advance with a 5-year maturity, at 1.89%, due October 17, 2019~~

~~$10 million advance with a 14-month maturity, at 2.88%, due November 29, 2019~~

~~$5 million advance with a 1.5-year maturity, at 2.67%, due December 27, 2019~~

~~$4 million advance with a 3-year maturity, at 2.40%, due January 9, 2020~~

~~$5 million advance with a 2.5-year maturity, at 1.67%, due January 31, 2020~~

~~$5 million advance with a 4-year maturity, at 1.79%, due April 13, 2020~~

~~$10 million advance with a 1.5 year maturity, at 2.95%, due May 29, 2020~~

March 31, 2020

March 31, 2019

Operating cash flows from operating leases