☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

PART I

ITEM 1. FINANCIAL STATEMENTS

First Mid Bancshares, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data)	June 30, 2020			December 31, 2019
Assets
Cash and due from banks:
Non-interest bearing	$	77,392		$	76,498
Interest bearing		159,809			7,656
Federal funds sold		1,286			926
Cash and cash equivalents		238,487			85,080
Certificates of deposit		3,890			4,625
Investment securities:
Available-for-sale, at fair value		708,158			685,636
Held-to-maturity, at amortized cost (estimated fair value of $15,216 and $69,572 at June 30, 2020 and December 31, 2019, respectively)		15,009			69,542
Equity securities, at fair value		97			412
Loans held for sale		5,981			1,820
Loans		3,199,281			2,693,527
Less allowance for credit losses		(38,381	)		(26,911	)
Net loans		3,160,900			2,666,616
Interest receivable		16,842			15,577
Other real estate owned		2,256			3,644
Premises and equipment, net		58,905			59,491
Goodwill		104,992			104,992
Intangible assets, net		25,664			28,265
Bank owned life insurance		68,084			67,225
Right of use lease assets		15,979			17,006
Other assets		33,067			29,495
Total assets	$	4,458,311		$	3,839,426
Liabilities and Stockholders’ Equity
Deposits:
Non-interest bearing	$	817,623		$	633,331
Interest bearing		2,568,204			2,284,035
Total deposits		3,385,827			2,917,366
Securities sold under agreements to repurchase		350,288			208,109
Interest payable		1,922			2,261
FHLB borrowings		103,939			113,895
Other borrowings		—			5,000
Junior subordinated debentures		18,942			18,858
Lease liabilities		16,014			17,007
Other liabilities		32,106			30,321
Total liabilities		3,909,038			3,312,817
Stockholders’ Equity:
Common stock, $4 par value; authorized 30,000,000 shares; issued 17,342,592 and 17,287,882 shares in 2020 and 2019, respectively		71,370			71,152
Additional paid-in capital		297,392			295,925
Retained earnings		179,435			166,667
Deferred compensation		2,364			2,760
Accumulated other comprehensive income		17,105			8,360
Less treasury stock at cost, 614,403 shares in 2020 and 2019		(18,393	)		(18,255	)
Total stockholders’ equity		549,273			526,609
Total liabilities and stockholders’ equity	$	4,458,311		$	3,839,426

ITEM 1. FINANCIAL STATEMENTS
First Mid Bancshares, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share data) June 30, 2019 December 31, 2018
Assets
Cash and due from banks:
Non-interest bearing $ 101,027
$ 63,593
Interest bearing 66,470
77,142
Federal funds sold 919
665
Cash and cash equivalents 168,416
141,400
Certificates of deposit investments 6,585
7,569
Investment securities:

Available-for-sale, at fair value 757,690
692,274
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
Loans held for sale 1,717
1,508
Loans 2,544,826
2,643,011
Less allowance for loan losses (26,359 ) (26,189 )
Net loans 2,518,467
2,616,822
Interest receivable 15,650
16,881
Other real estate owned 3,569
2,534
Premises and equipment, net 59,898
59,117
Goodwill, net 104,975
105,277
Intangible assets, net 30,787
33,820
Bank owned life insurance 66,347
65,484
Right of use lease assets 12,805
—
Other assets 26,447
27,612
Total assets $ 3,842,841
$ 3,839,734
Liabilities and Stockholders’ Equity

Deposits:

Non-interest bearing $ 603,823
$ 575,784
Interest bearing 2,408,667
2,412,902
Total deposits 3,012,490
2,988,686
Securities sold under agreements to repurchase 152,264
192,330
Interest payable 2,416
1,758
FHLB borrowings 95,826
119,745
Other borrowings —
7,724
Junior subordinated debentures 29,084
29,000
Lease liabilities 12,815
—
Other liabilities 28,988
24,627
Total liabilities 3,333,883
3,363,870
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
Additional paid-in capital 295,415
293,937
Retained earnings 149,688
131,392
Deferred compensation 2,323
2,761
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 )
Total stockholders’ equity 508,958
475,864
Total liabilities and stockholders’ equity $ 3,842,841
$ 3,839,734

See accompanying notes to unaudited condensed consolidated financial statements.

First Mid Bancshares, Inc.

Condensed Consolidated Statements of Income (unaudited)

(In thousands, except per share data)

	Three months ended June 30,					Six months ended June 30,
(In thousands, except per share data)	2020			2019		2020			2019
Interest income:
Interest and fees on loans	$	31,382		$	31,539	$	61,409		$	63,643
Interest on investment securities		4,077			5,436		8,666			10,645
Interest on certificates of deposit investments		21			37		52			75
Interest on federal funds sold		—			4		2			7
Interest on deposits with other financial institutions		55			555		147			1,252
Total interest income		35,535			37,571		70,276			75,622
Interest expense:
Interest on deposits		3,105			4,940		6,966			9,318
Interest on securities sold under agreements to repurchase		158			215		352			475
Interest on FHLB borrowings		505			696		1,085			1,419
Interest on other borrowings		11			1		26			1
Interest on subordinated debentures		174			406		392			844
Total interest expense		3,953			6,258		8,821			12,057
Net interest income		31,582			31,313		61,455			63,565
Provision for loan losses		6,136			91		11,617			1,038
Net interest income after provision for loan losses		25,446			31,222		49,838			62,527
Other income:
Wealth management revenues		3,827			3,587		7,453			7,232
Insurance commissions		4,088			3,760		10,709			9,315
Service charges		1,111			1,959		2,889			3,761
Securities gains, net		287			218		818			272
Mortgage banking revenue, net		1,236			346		1,544			585
ATM / debit card revenue		2,239			2,202		4,226			4,218
Bank owned life insurance		428			447		859			877
Other		669			1,069		1,897			1,967
Total other income		13,885			13,588		30,395			28,227
Other expense:
Salaries and employee benefits		15,455			15,565		31,955			32,139
Net occupancy and equipment expense		4,141			4,543		8,383			8,998
Net other real estate owned expense		(2	)		188		(48	)		241
FDIC insurance		289			197		382			476
Amortization of intangible assets		1,290			1,823		2,585			3,179
Stationery and supplies		275			264		543			551
Legal and professional		1,489			1,304		2,887			2,498
ATM / debit card		274			829		879			1,632
Marketing and donations		314			481		795			935
Other		2,573			4,993		5,468			7,848
Total other expense		26,098			30,187		53,829			58,497
Income before income taxes		13,233			14,623		26,404			32,257
Income taxes		3,096			3,642		6,268			7,960
Net income	$	10,137		$	10,981	$	20,136		$	24,297
Per share data:
Basic net income per common share	$	0.61		$	0.66	$	1.21		$	1.46
Diluted net income per common share		0.60			0.66		1.20			1.45
Cash dividends declared per common share		0.40			0.36		0.40			0.36

First Mid Bancshares, Inc.
Condensed Consolidated Statements of Income (unaudited)
(In thousands, except per share data) Three months ended June 30, Six months ended June 30,
2019 2018 2019 2018
Interest income:
Interest and fees on loans $ 31,539
$ 25,362
$ 63,643
$ 46,369
Interest on investment securities 5,436
4,679
10,645
8,760
Interest on certificates of deposit investments 37
12
75
21
Interest on federal funds sold 4
1
7
2
Interest on deposits with other financial institutions 555
77
1,252
137
Total interest income 37,571
30,131
75,622
55,289
Interest expense:

Interest on deposits 4,940
1,670
9,318
2,932
Interest on securities sold under agreements to repurchase 215
65
475
124
Interest on FHLB borrowings 696
475
1,419
750
Interest on other borrowings 1
118
1
226
Interest on subordinated debentures 406
349
844
608
Total interest expense 6,258
2,677
12,057
4,640
Net interest income 31,313
27,454
63,565
50,649
Provision for loan losses 91
1,877
1,038
2,932
Net interest income after provision for loan losses 31,222
25,577
62,527
47,717
Other income:

Wealth management revenues 3,587
1,599
7,232
3,341
Insurance commissions 3,760
838
9,315
2,325
Service charges 1,959
1,803
3,761
3,438
Securities gains, net 218
881
272
901
Mortgage banking revenue, net 346
410
585
571
ATM / debit card revenue 2,202
1,860
4,218
3,464
Bank owned life insurance 447
315
877
591
Other 1,069
655
1,967
1,217
Total other income 13,588
8,361
28,227
15,848
Other expense:

Salaries and employee benefits 15,565
11,057
32,139
21,251
Net occupancy and equipment expense 4,543
3,505
8,998
6,778
Net other real estate owned expense 188
7
241
83
FDIC insurance 197
285
476
566
Amortization of intangible assets 1,823
716
3,179
1,221
Stationery and supplies 264
186
551
397
Legal and professional 1,304
1,717
2,498
2,854
Marketing and donations 481
431
935
785
Other 5,822
2,892
9,480
5,235
Total other expense 30,187
20,796
58,497
39,170
Income before income taxes 14,623
13,142
32,257
24,395
Income taxes 3,642
3,105
7,960
5,968
Net income $ 10,981
$ 10,037
$ 24,297
$ 18,427
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

See accompanying notes to unaudited condensed consolidated financial statements.

First Mid Bancshares, Inc.

Condensed Consolidated Statements of Comprehensive Income (unaudited)

	Three months ended June 30,						Six months ended June 30,
(in thousands)	2020			2019			2020			2019
Net income	$	10,137		$	10,981		$	20,136		$	24,297
Other Comprehensive Income
Unrealized gains (losses) on available-for-sale securities, net of taxes of ($4,938) and ($2,531) for three months ended June 30, 2020 and 2019, respectively and ($3,799) and ($5,653) for six months ended June 30, 2020 and 2019, respectively.		12,091			6,195			9,302			13,841
Amortized holding losses on held-to-maturity securities transferred from available-for- sale, net of taxes of ($5) and ($8) for three months ended June 30, 2020 and 2019, respectively and ($10) and ($17) for six months ended June 30, 2020 and June 30, 2019, respectively.		9			21			24			41
Less: reclassification adjustment for realized gains included in net income, net of taxes of $83 and $63 for three months ended June 30, 2020 and 2019, respectively and $237 and $79 for six months ended June 30, 2020 and 2019, respectively.		(204	)		(155	)		(581	)		(193	)
Other comprehensive income, net of taxes		11,896			6,061			8,745			13,689
Comprehensive income	$	22,033		$	17,042		$	28,881		$	37,986

First Mid Bancshares, Inc.
Condensed Consolidated Statements of Comprehensive Income (unaudited)
(in thousands) Three months ended June 30, Six months ended June 30,
2019 2018 2019 2018
Net income $ 10,981
$ 10,037
$ 24,297
$ 18,427
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 )
Other comprehensive income (loss), net of taxes 6,061
(755 ) 13,689
(6,970 )
Comprehensive income $ 17,042
$ 9,282
$ 37,986
$ 11,457

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 June 30, 2020 and 2019

(in thousands)	Common Stock		Additional Paid-In- Capital		Retained Earnings			Deferred Compensation		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Total
March 31, 2020	$	71,268	$	296,853	$	175,949		$	2,022	$	5,209	$	(18,250	)	$	533,051
Net income		—		—		10,137			—		—		—			10,137
Other comprehensive income, net of tax		—		—		—			—		11,896		—			11,896
Cash dividends on common stock (.40/share)						(6,651	)									(6,651	)
Issuance of 13,804 common shares pursuant to the Dividend Reinvestment Plan		54		282		—			—		—		—			336
Issuance of 8,163 common shares pursuant to the Deferred Compensation Plan		33		195		—			—		—		—			228
Issuance of 3,739 common shares pursuant to the Employee Stock Purchase Plan		15		62		—			—		—		—			77
Deferred compensation		—		—		—			143		—		(143	)		—
Vested restricted shares/units compensation expense		—		—		—			199		—		—			199
June 30, 2020	$	71,370	$	297,392	$	179,435		$	2,364	$	17,105	$	(18,393	)	$	549,273

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 the Dividend Reinvestment Plan		54		419		—			—		—		—			473
Issuance of 7,398 common shares pursuant to the 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

First Mid Bancshares, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the six months ended June 30, 2020 and 2019

(in thousands)	Common Stock		Additional Paid-In- Capital			Retained Earnings			Deferred Compensation			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
December 31, 2019	$	71,152	$	295,925		$	166,667		$	2,760		$	8,360		$	(18,255	)	$	526,609
Cumulative change in accounting principal							(717	)											(717	)
December 31, 2019 (as adjusted for change in accounting principal)		71,152		295,925			165,950			2,760			8,360			(18,255	)		525,892
Net income		—		—			20,136			—			—			—			20,136
Other comprehensive income, net of tax		—		—			—			—			8,745			—			8,745
Cash dividends on common stock (.40/share)							(6,651	)											(6,651	)
Issuance of 13,804 common shares pursuant to the Dividend Reinvestment Plan		54		282			—			—			—			—			336
Issuance of 8,163 common shares pursuant to Deferred Compensation Plan		33		195			—			—			—			—			228
Issuance of 25,200 restricted shares pursuant to the 2017 Stock Incentive Plan		101		767			—			—			—			—			868
Issuance of 7,543 common shares pursuant to the Employee Stock Purchase Plan		30		133			—			—			—			—			163
Deferred compensation		—		—			—			138			—			(138	)		—
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		—		—			—			(534	)		—			—			(534	)
June 30, 2020	$	71,370	$	297,392		$	179,435		$	2,364		$	17,105		$	(18,393	)	$	549,273

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 the 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

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 CashFlows(unaudited)

	Six months ended June 30,
(In thousands)	2020			2019
Cash flows from operating activities:
Net income	$	20,136		$	24,297
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		11,617			1,038
Depreciation, amortization and accretion, net		5,714			5,435
Change in cash surrender value of bank owned life insurance		(859	)		(877	)
Stock-based compensation expense		404			264
Operating lease payments		(1,375	)		(1,340	)
Gains on investment securities, net		(818	)		(272	)
Gain on sales of repossessed assets, net		(482	)		63
Loss on sale of premises and equipment		(26	)		—
Gains on sale of loans held for sale, net		(1,756	)		(508	)
(Increase) decrease in accrued interest receivable		(1,265	)		1,231
(Decrease) increase in accrued interest payable		(211	)		823
Origination of loans held for sale		(90,495	)		(28,750	)
Proceeds from sale of loans held for sale		88,090			29,049
(Increase) decrease in other assets		(2,163	)		1,658
Decrease in other liabilities		(1,282	)		(141	)
Net cash provided by operating activities		25,229			31,970
Cash flows from investing activities:
Proceeds from maturities of certificates of deposit investments		1,715			984
Purchases of certificates of deposit investments		(980	)		—
Proceeds from sales of securities available-for-sale		1,566			20,052
Proceeds from maturities of securities available-for-sale		182,410			42,222
Proceeds from maturities of securities held-to-maturity		45,000			—
Purchases of securities available-for-sale		(184,751	)		(108,684	)
Net (increase) decrease in loans		(506,945	)		95,687
Purchases of premises and equipment		(1,282	)		(2,543	)
Proceeds from sales of other real property owned		1,731			508
Net cash (used in) provided by investing activities		(461,536	)		48,226
Cash flows from financing activities:
Net increase in deposits		468,461			23,804
Decrease in federal funds purchased		(5,000	)		—
Increase (decrease) in repurchase agreements		142,179			(40,066	)
Proceeds from FHLB advances		19,000			—
Repayment of FHLB advances		(29,000	)		(24,000	)
Proceeds from short-term debt		5,000			—
Repayment of short-term debt		(5,000	)		—
Repayment of long-term debt		—			(7,724	)
Proceeds from issuance of common stock		390			334
Dividends paid on common stock		(6,316	)		(5,528	)
Net cash provided by (used in) financing activities		589,714			(53,180	)
Increase in cash and cash equivalents		153,407			27,016
Cash and cash equivalents at beginning of period		85,080			141,400
Cash and cash equivalents at end of period	$	238,487		$	168,416
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	9,160		$	11,399
Income taxes		(8,616	)		6,987
Supplemental disclosures of noncash investing and financing activities
Loans transferred to other real estate		205			1,630
Initial recognition of right-of-use assets		—			14,116
Initial recognition of lease liabilities		—			14,116
Dividends reinvested in common stock		336			473
Net tax benefit related to option and deferred compensation plans		22			56

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,
(In thousands) 2019 2018
Cash flows from operating activities:
Net income $ 24,297
$ 18,427
Adjustments to reconcile net income to net cash provided by operating activities:

Provision for loan losses 1,038
2,932
Depreciation, amortization and accretion, net 5,435
3,478
Change in cash surrender value of bank owned life insurance (877 ) (591 )
Stock-based compensation expense 264
160
Operating lease payments (1,340 ) —
Gains on investment securities, net (272 ) (901 )
Loss on sales of repossessed assets, net 63
11
Loss on write down of premises and equipment —
1
Gains on sale of loans held for sale, net (508 ) (462 )
Decrease in accrued interest receivable 1,231
549
Increase in accrued interest payable 823
216
Origination of loans held for sale (28,750 ) (27,596 )
Proceeds from sale of loans held for sale 29,049
26,629
Decrease in other assets 1,658
1,435
Decrease in other liabilities (141 ) (6,242 )
Net cash provided by operating activities 31,970
18,046
Cash flows from investing activities:

Proceeds from maturities of certificates of deposit investments 984
—
Proceeds from sales of securities available-for-sale 20,052
13,152
Proceeds from maturities of securities available-for-sale 42,222
25,950
Purchases of securities available-for-sale (108,684 ) (28,260 )
Net decrease (increase) in loans 95,687
(73,973 )
Purchases of premises and equipment (2,543 ) (753 )
Proceeds from sales of other real property owned 508
1,040
Net cash provided by acquisition —
10,323
Net cash provided by (used in) investing activities 48,226
(52,521 )
Cash flows from financing activities:
Net increase in deposits 23,804
10,601
Decrease in repurchase agreements (40,066 ) (13,726 )
Proceeds from FHLB advances —
15,000
Repayment of FHLB advances (24,000 ) (10,000 )
Repayment of long-term debt (7,724 ) (938 )
Proceeds from issuance of common stock 334
36,263
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 )
Cash and cash equivalents at beginning of period 141,400
88,879
Cash and cash equivalents at end of period $ 168,416
$ 85,575

First Mid Bancshares, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited) Six months ended June 30,
(In thousands) 2019 2018
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 11,399
$ 4,097
Income taxes 6,987
5,020
Supplemental disclosures of noncash investing and financing activities

Loans transferred to other real estate owned 1,630
214
Initial recognition of right-of-use assets 14,116
—
Initial recognition of lease liabilities 14,116
—
Dividends reinvested in common stock 473
533
Net tax benefit related to option and deferred compensation plans 56
161
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~~wholly owned subsidiaries: First Mid Bank & Trust, N.A. (“FirstMidBank”),FirstMidWealth ManagementCompany,Mid-IllinoisDataServices,Inc.(“MIDS”) ~~and~~ ,FirstMidInsurance 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, ~~2019~~2020 and ~~2018~~,2019, 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~~2020 presentation and there was no impact on net income or stockholders’ equity. The results of the interim period ended June 30, ~~2019~~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 ofAmerica.

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 to the Company, after deducting underwriting discounts and commissions and offering expenses,~~St. Louis metro market totaling $183 million. There were ~~approximately $34.0 million.~~

~~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")no loans purchased 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”).

deteriorated credit.

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 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”).

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, the Company entered into a Sales Agency Agreement, pursuant to which the Company may sell, from time to time, up to an aggregate of $20 million of its common stock. Shares of 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 under the program. As of June 30, 2019, approximately $16.53 million of common stock remained available for issuance under the At The Market program.

~~Bank Owned Life Insurance~~

Stock Plans

AttheAnnualMeetingofStockholdersheldApril26,2017,thestockholdersapprovedtheFirstMid-IllinoisBancshares,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 SIPlan.

A maximum of 149,983 shares of common stock may be issued under the SI Plan. There have been no0 stock options awarded underanyCompanyplansince2008.TheCompanyhasawarded ~~10,500~~ 25,200and 25,950 sharesofrestrictedstockduring2020and ~~13,250 shares of restricted stock during~~ 2019, ~~and 2018,~~ respectively, and ~~15,540~~16,950 and ~~28,700~~16,200 restricted stock units during ~~2019~~2020 and ~~2018,~~ 2019,respectively.

Employee Stock Purchase Plan

At the Annual Meeting of Stockholders held April 25, 2018, the stockholders approved the First Mid-Illinois Bancshares, Inc. EmployeeStockPurchasePlan(“ESPP”).TheESPPisintendedtopromotetheinterestsoftheCompanybyprovidingeligible employeeswiththeopportunitytopurchasesharesofcommonstockoftheCompanyata5%discountthroughpayrolldeductions. The ESPP is also intended to qualify as an employee stock purchase plan under Section 423 of the Internal RevenueCode.

Amaximumof 600,000sharesofcommonstockmaybeissuedundertheESPP.AsofJune 30, 2020and2019, 7,543 shares and 2,858 shares, respectively, were issued pursuant to theESPP.

~~General Litigation~~

Captive Insurance Company

FirstMidCaptive,Inc.(the “Captive"),awholly ownedsubsidiaryoftheCompanywhichwasformedandbeganoperationsin 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 theInternalRevenueCode.PursuanttoSection831(b),ifgrosspremiumsdonotexceed$2,300,000,thentheCaptiveistaxable solely on its investment income. The Captive is included in the ~~ordinary course of business. It~~Company's consolidated financial statements and its federal incomereturn.

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

AccountingStandardsCodification606,RevenuefromContractswithCustomers(“ASC606”),establishesarevenuerecognition 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 subjecttoASC606,includingrevenuegeneratedfromfinancialinstruments,suchasloansandinvestmentsecurities,andrevenue relatedtomortgageservicingactivities,whicharesubjecttootheraccountingstandards.Adescriptionoftherevenue-generating activitiesthatarewithinthescopeofASC606,andincludedinotherincomeintheCompany’scondensedconsolidatedstatements of income are asfollows:

Trust revenues. The Company generates fee income from providing fiduciary services through its subsidiary, First Mid WealthManagementCompany.Feesarebilledinarrearsbasedupontheprecedingperiodaccountbalance.Revenuefrom the farm management department is recorded when service is complete, for example when crops aresold.

Brokerage commissions. The primary non-farm 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 asthecashisreceived.Foragencybillpolicies,FirstMidInsuranceretainsitscommissionportionofthecustomerpremium payment and remits the balance to the carrier. In both cases, the entire performance obligation is held by thecarriers.

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,~~vendors; however, the performanceobligation iswiththevendors.TheCompanyrecordsgainsonthesaleofloansandthesaleofOREOpropertiesafterthetransactions are complete and transfer of ownership hasoccurred.

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~~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~~2020 and December 31, ~~2018~~2019 are as follows (inthousands):

	Unrealized Gain (Loss) on Securities
June 30, 2020
Net unrealized gains on securities available-for-sale	$	24,107
Unamortized losses on held-to-maturity securities transferred from available-for-sale		(15	)
Tax expense		(6,987	)
Balance at June 30, 2020	$	17,105

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

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

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 )

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

	Amounts Reclassified from Other Comprehensive Income
	Three months ended June 30,						Six months ended June 30,
	2020			2019			2020			2019			Affected Line Item in the Statements of Income
Realized gains on available-for-sale securities	$	287		$	218		$	818		$	272		Securities gains, net
Tax effect		(83	)		(63	)		(237	)		(79	)	Income taxes
Total reclassifications out of accumulated other comprehensive income	$	204		$	155		$	581		$	193		Net reclassified amount

Amounts Reclassified from Other Comprehensive Income Affected Line Item in the Statements of Income

Three months ended June 30, Six months ended June 30,
2019 2018 2019 2018
Realized gains on available-for-sale securities $ 218
$ 881
$ 272
$ 901
Securities gains, net
(Total reclassified amount before tax)
(63 ) (255 ) (79 ) (261 ) Income taxes
Total reclassifications out of accumulated other comprehensive income $ 155
$ 626
$ 193
$ 640
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.

~~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 lease 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~~(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 0 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		Pre-ASU		Impact of ASU
	under ASU		2016-13		2016-13
	2016-13		Adoption		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		Pre-ASU		Impact of ASU
	under ASU		2016-13		2016-13
	2016-13		Adoption		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

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~~ months ended June 30, ~~2019~~2020 and ~~2018~~2019 were as follows:

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Basic Net Income per Common Share
Available to Common Stockholders:
Net income	$	10,137,000	$	10,981,000	$	20,136,000	$	24,297,000
Weighted average common shares outstanding		16,709,886		16,683,194		16,701,536		16,674,646
Basic earnings per common share	$	0.61	$	0.66	$	1.21	$	1.46

Diluted Net Income per Common Share
Available to Common Stockholders:
Net income applicable to diluted earnings per share	$	10,137,000	$	10,981,000	$	20,136,000	$	24,297,000
Weighted average common shares outstanding		16,709,886		16,683,194		16,701,536		16,674,646
Dilutive potential common shares:
Restricted stock awarded		46,908		34,780		46,908		34,780
Dilutive potential common shares		46,908		34,780		46,908		34,780
Diluted weighted average common shares outstanding		16,756,794		16,717,974		16,748,444		16,709,426
Diluted earnings per common share	$	0.60	$	0.66	$	1.20	$	1.45

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

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
Weighted average common shares outstanding 16,683,194
13,956,674
16,674,646
13,317,395
Dilutive potential common shares:
Assumed conversion of stock options —
4,124
—
4,053
Restricted stock awarded 34,780
13,250
34,780
13,250
Dilutive potential common shares 34,780
17,374
34,780
17,303
Diluted weighted average common shares outstanding 16,717,974
13,974,048
16,709,426
13,334,698
Diluted earnings per common share $ 0.66
$ 0.72
$ 1.45
$ 1.38

There were no0 shares not considered in computing diluted earnings per share for the three and ~~six-month periods~~six months ended June 30, ~~2019~~2020 and ~~2018~~2019 because they were anti-dilutive.

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~~2020 and December 31, ~~2018~~2019 were as follows (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
June 30, 2020
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations & agencies	$	73,000	$	899	$	—		$	73,899
Obligations of states and political subdivisions		191,120		9,593		(16	)		200,697
Mortgage-backed securities: GSE residential		412,175		13,549		(50	)		425,674
Other securities		7,756		160		(28	)		7,888
Total available-for-sale	$	684,051	$	24,201	$	(94	)	$	708,158
Held-to-maturity:
U.S. Treasury securities and obligations of U.S. government corporations & agencies	$	15,009	$	207	$	—		$	15,216
December 31, 2019
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations & agencies	$	106,428	$	952	$	(60	)	$	107,320
Obligations of states and political subdivisions		172,460		5,990		(17	)		178,433
Mortgage-backed securities: GSE residential		391,307		5,331		(512	)		396,126
Other securities		3,750		7		—			3,757
Total available-for-sale	$	673,945	$	12,280	$	(589	)	$	685,636
Held-to-maturity:
U.S. Treasury securities and obligations of U.S. government corporations & agencies	$	69,542	$	99	$	(69	)	$	69,572

Amortized Cost Gross Unrealized Gains Gross Unrealized (Losses) Fair Value
June 30, 2019
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations & agencies $ 192,035
$ 1,585
$ (196 ) $ 193,424
Obligations of states and political subdivisions 181,353
4,946
(70 ) 186,229
Mortgage-backed securities: GSE residential 370,752
4,505
(611 ) 374,646
Other securities 3,278
113
—
3,391
Total available-for-sale $ 747,418
$ 11,149
$ (877 ) $ 757,690
Held-to-maturity:
U.S. Treasury securities and obligations of U.S. government corporations & agencies $ 69,488
$ 90
$ (137 ) $ 69,441

December 31, 2018
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations & agencies $ 201,380
$ 504
$ (3,235 ) $ 198,649
Obligations of states and political subdivisions 193,195
1,224
(1,840 ) 192,579
Mortgage-backed securities: GSE residential 304,372
486
(6,186 ) 298,672
Other securities 2,278
96
—
2,374
Total available-for-sale $ 701,225
$ 2,310
$ (11,261 ) $ 692,274
Held-to-maturity:
U.S. Treasury securities and obligations of U.S. government corporations & agencies $ 69,436
$ —
$ (1,527 ) $ 67,909

The Company also had $97,000 and $412,000 of equity securities, at fair value, as of June 30, 2020 and December 31, 2019, respectively. 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 June 30, 2020, the Company did not record 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 three and six months endedJune 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):

	Three months ended June 30,					Six months ended June 30,
	2020		2019			2020		2019
Gross gains	$	287	$	230		$	818	$	314
Gross losses		—		(12	)		—		(42	)

Three months ended June 30, Six months ended June 30,
2019 2018 2019 2018
Gross gains $ 230
$ 921
$ 314
$ 941
Gross losses (12 ) (40 ) (42 ) (40 )

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~~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
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	46,263		$	15,852		$	11,784		$	—		$	73,899
Obligations of state and political subdivisions		32,878			73,456			93,298			1,065			200,697
Mortgage-backed securities: GSE residential		61,458			321,315			42,901			—			425,674
Other securities		—			6,842			1,046			0			7,888
Total available-for-sale investments	$	140,599		$	417,465		$	149,029		$	1,065		$	708,158
Weighted average yield		2.34	%		2.59	%		2.41	%		3.68	%		2.50	%
Full tax-equivalent yield		2.60	%		2.78	%		3.05	%		4.99	%		2.79	%
Held to Maturity:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	9,985		$	5,024		$	—		$	—		$	15,009
Weighted average yield		2.33	%		2.06	%		—	%		—	%		2.24	%
Full tax-equivalent yield		2.33	%		2.06	%		—	%		—	%		2.24	%

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
Obligations of state and political subdivisions 26,788
79,451
79,012
978
186,229
Mortgage-backed securities: GSE residential 1,936
283,263
89,447
—
374,646
Other securities 2,007
1,000
—
384
3,391
Total available-for-sale investments $ 185,001
$ 402,868
$ 168,459
$ 1,362
$ 757,690
Weighted average yield 2.65 % 2.82 % 2.91 % 3.07 % 2.80 %
Full tax-equivalent yield 2.80 % 3.04 % 3.45 % 4.07 % 3.07 %
Held to Maturity:
U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 54,521
$ 14,967
$ —
$ —
$ 69,488
Weighted average yield 1.80 % 2.24 % — % — % 1.90 %
Full tax-equivalent yield 1.80 % 2.24 % — % — % 1.90 %

The weighted average yields are calculated based 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.~~

2020.

Investment securities carried at approximately ~~$652~~$653 million and ~~$628~~$688 million at June 30, ~~2019~~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.

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

	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
June 30, 2020
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	—	$	—		$	—	$	—		$	—	$	—
Obligations of states and political subdivisions		6,519		(16	)		—		—			6,519		(16	)
Mortgage-backed securities: GSE residential		146		(2	)		15,276		(48	)		15,422		(50	)
Other securities		1,722		(28	)		—		—			1,722		(28	)
Total	$	8,387	$	(46	)	$	15,276	$	(48	)	$	23,663	$	(94	)
December 31, 2019
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	23,375	$	(60	)	$	—	$	—		$	23,375	$	(60	)
Obligations of states and political subdivisions		3,469		(16	)		347		(1	)		3,816		(17	)
Mortgage-backed securities: GSE residential		67,080		(322	)		20,888		(190	)		87,968		(512	)
Total	$	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	$	14,996	$	(25	)	$	24,565	$	(44	)	$	39,561	$	(69	)

Less than 12 months 12 months or more Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses
June 30, 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 )
Obligations of states and political subdivisions —
—
13,143
(70 ) 13,143
(70 )
Mortgage-backed securities: GSE residential 1,039
(2 ) 58,297
(609 ) 59,336
(611 )
Total $ 3,531
$ (9 ) $ 105,780
$ (868 ) $ 109,311
$ (877 )
Held-to-maturity:
U.S. Treasury securities and obligations of U.S. government corporations and agencies $ —
$ —
$ 39,428
$ (137 ) $ 39,428
$ (137 )
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, 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~~4 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~~$44,000 in a continuous unrealized loss position for twelve months or more.

Obligations of states and political subdivisions. At June 30, 2020, there were no obligations of states and political subdivisions in a continuous loss position for twelve months or more. At December 31, 2019, there was 1 obligation of states and political subdivisions with a fair value of $347,000 and unrealized losses of $1,000 in a continuous unrealized loss position for twelve months or more.

Mortgage-backed Securities: GSE Residential. At June 30, 2020, there were 2 mortgage-backed securities with a fair value of $15,276,000 and unrealized losses of $48,000 in a continuous unrealized loss position for twelve months or more. At December 31, ~~2018,~~2019 there were ~~nine held-to-maturity U.S. Treasury~~14 mortgage-backed securities ~~and obligations of U.S. government corporations and agencies~~ with a fair value of ~~$48,226,000~~$20,888,000 and unrealized losses of ~~$1,380,000~~$190,000 in a continuous unrealized loss position for twelve months or more.

~~Obligations of states and political subdivisions.~~ At ~~June 30, 2019~~, there were twenty-five 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, there were eighty-four obligations of states and political subdivisions with a fair value of $42,741,000 and unrealized losses of $1,390,000 in a continuous unrealized loss position for twelve months or more.

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

The Company does not believe any ~~other individual~~ unrealized ~~loss~~losses as of June 30, ~~2019~~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.

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~~2020 and December 31, ~~2018~~2019 follows (in thousands):

	June 30, 2020		December 31, 2019
Construction and land development	$	181,362	$	94,462
Agricultural real estate		251,695		240,481
1-4 Family residential properties		341,691		336,553
Multifamily residential properties		140,415		155,132
Commercial real estate		1,125,584		997,175
Loans secured by real estate		2,040,747		1,823,803
Agricultural loans		149,072		136,023
Commercial and industrial loans		818,686		528,987
Consumer loans		81,980		83,544
All other loans		123,937		126,807
Total Gross loans		3,214,422		2,699,164
Less: Loans held for sale		5,981		1,820
		3,208,441		2,697,344
Less:
Net deferred loan fees, premiums and discounts		9,160		3,817
Allowance for credit losses		38,381		26,911
Net loans	$	3,160,900	$	2,666,616

June 30,
2019 December 31,
2018
Construction and land development $ 57,410
$ 51,013
Agricultural real estate 230,421
232,409
1-4 Family residential properties 355,922
374,751
Multifamily residential properties 169,370
186,393
Commercial real estate 892,269
911,656
Loans secured by real estate 1,705,392
1,756,222
Agricultural loans 118,150
136,125
Commercial and industrial loans 530,749
559,120
Consumer loans 85,630
92,744
All other loans 114,792
113,925
Total Gross loans 2,554,713
2,658,136
Less: Loans held for sale 1,717
1,508
2,552,996
2,656,628
Less:

Net deferred loan fees, premiums and discounts 8,170
13,617
Allowance for loan losses 26,359
26,189
Net loans $ 2,518,467
$ 2,616,822

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 $14.1 million and $12.4 million at June 30, 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,~~2020, the Company’s loan portfolio included ~~$348.6~~$400.8 million of loans to borrowers whose businesses are directly related to agriculture. Of this amount, ~~$264.1~~$330.5 million was concentrated in corn and other grain farming. Total loans to borrowers whose businesses are directly related to agriculture ~~decreased $19.9~~increased $24.4 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~~ ~~$12.0~~increased $29.0 million from ~~$276.1~~$301.5 million at December 31, ~~2018. While the Company adheres to sound~~2019. 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~~$126.5 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~~$401.5 million ofloans to lessors of non-residential buildings, ~~$288.4~~$293.7 million of loans to lessors of residential buildings and dwellings, $117.4 million of loans to nursing care facilities, and ~~$90.1~~$124.9 million of loans to other gamblingindustries.

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~~most 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~~Most of the the Company’s loans are to businesses located in thegeographic 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 loansegments.

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~~.1.20x. Amortization periods for commercial real estate loans are generally limited to twenty ~~years~~.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~~.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~~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~~.twenty-five years. Federal government-assistance lending programs through the Farm Service Agency are used to mitigate the level of credit risk when deemedappropriate.

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~~most 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~~.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~~twenty-five years or less. The Company does not originate subprimemortgage loans.

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 thecollateral.

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~~

Allowance 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~~Losses

The 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 Losses~~

~~The allowance for loan~~ 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~~separately from non-impaired loans.

The Company has loans acquired 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 such 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~~3 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 loansforwhichforeclosure isdeemedtobe probable.Aspecificallowanceisassigned whenexpectedcashflows orcollateral ~~do not justify~~are less than the carrying amount of the loan. The carrying value of the loan reflects reductions from priorcharge-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 January 1, 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.

TheCompanyalsoconsidersspecificcurrenteconomiceventsoccurringglobally,intheU.S.andinitslocalmarkets.InMarch 2020,inresponsetotheCOVID-19outbreak,itssignificantdisruptionsintheU.S.economyandimpactsonlocalmarkets,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.OtherCOVID-19relatedimpactsconsideredincludedrevenuelossesofbusinessesrequiredtorestrictorceaseservices, income loss to workers laid off as a result of COVID-19 restrictions, various federal and state government stimulus programs andadditionaldeferralprogramsofferedbyFirstMidBankbeginninginApril2020.Othereventsconsideredincludethestatus oftradeagreementswithChina,scheduledincreasesinminimumwageandchangestotheminimumsalarythresholdforovertime provisions,currentandprojectedunemploymentrates,currentandprojectedgrainandoilpricesandeconomiesoflocalmarkets where customers work andoperate.

Withineachpool,riskelementsareevaluatedthathavespecificimpactstotheborrowerswithinthepool.These,alongwiththe generalrisksandevents,andthespecificlendingpoliciesandproceduresbyloantypedescribedabove,areanalyzedtoestimate the qualitative factors used to adjust the historical lossrates.

Duringthecurrentperiod,thefollowingassumptionsandfactorswereconsideredwhendeterminingthehistoricallossrateand any potential adjustments by loanpool.

Construction and Land Development Loans. The average life of the construction and land development segment was determinedtobetwelvemonths.Historicallossesinthissegmentremainedverylow.Currentactivityinthisindustrywas deemedessentialandhascontinuedduringCOVID-19, however, projects may be hampered by COVID-19 restrictions which could increase costs and duration. Thequalitativefactor for this segment was increased to account for these potential risks.

Agricultural Real Estate Loans.Theaveragelifeoftheagricultural real estatesegmentwasdeterminedtobethirty-sixmonths.Historicallossesinthesegment 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. More pressure on landowners to lower cash rents as farmers struggle to cover expenses is expected which would lower the return to landowners and impact the market value of the land. The qualitative factor for this segment was increased to account for this potential risk.

1- 4 Family Residential Properties Loans. The average life of the 1-4 Family Residential segment was determined to be: ResidentialRealEstate-non-owneroccupied,sixtymonths;ResidentialRealEstate-owneroccupied,sixtymonths; HomeEquitylinesofcredit,thirtymonths.COVID-19hasimpactedthefinancesofconsumersfromlayoffsandfurloughs resultingfromemployers thatmustreduceorsuspendoperations.Increasedriskinthissegmentincludesconsumerabilityto makemortgageandrentpayments.Someofthisimpacthasbeenoffsetbygovernmentalactionssuchasstimuluspayments and extended unemployment benefits. First Mid Bank has also offered short-term loan payment deferral to borrowers in thissegment.Thehistoricallossrateforthissegmentdeclinedfortheperiodbutwasoffsetbyanincreaseinthequalitative factor to account for these potentialrisks.

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.While there was a slight decreaseinthehistoricallossrate,thequalitativefactorforthissegmentwasincreasedto account for these risks.

Agricultural Loans. The average life of the agricultural segment was determined to be eighteen months. Losses in this segment are very low and it is believed that borrowers in this segment will benefit from current governmental programs such as PPP and MFP. Many farmers are holding grain from the 2019 operating season waiting for an increase in prices, however, as of June 30, prices were down compared to the beginning of the year. It is now believed that many farmers will likely not be able to cover their operating expenses. The qualitative factor of this segment was increased to account for this new risk.

CommercialandIndustrialLoans.Theaveragelifeofthecommercialandindustrialsegmentwasdeterminedtobetwenty-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 newrisks.

Consumer Loans. The average life of the consumer segment was determined to be thirty-six months. The financial status ofmanyborrowershasbeenimpactedbyCOVID-19eventsincludinglayoffsandreducedhours.Someofthisimpacthas been offset by government stimulus programs, increased paid leave and increased and extended unemployment benefits. Additionally,FirstMidBankhasofferedashort-termpaymentdeferralprogram.While thehistoricallossratedecreasedforthis period, the qualitative factor for the segment was increased to account for these 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 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 theacquisition 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 and six months ended June 30, 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 June 30, 2020
Beginning Balance	$	1,620		$	1,335	$	1,931	$	13,621	$	1,064		$	11,294	$	2,011		$	32,876
Provision for credit loss expense		738			299		483		3,118		259			1,286		(47	)		6,136
Loans charged off		—			—		69		467		0			311		116			963
Recoveries collected		—			—		141		—		—			91		100			332
Ending balance	$	2,358		$	1,634	$	2,486	$	16,272	$	1,323		$	12,360	$	1,948		$	38,381

Six months ended June 30, 2020
Beginning Balance	$	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		1,325			311		406		5,079		300			4,101		95			11,617
Loans charged off		—			—		265		551		—			1,283		287			2,386
Recoveries collected		—			—		203		5		—			114		245			567
Ending balance	$	2,358		$	1,634	$	2,486	$	16,272	$	1,323		$	12,360	$	1,948		$	38,381

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~~six months ended June 30, 2019 ~~and 2018~~ and for the year ended December 31, ~~2018~~2019 (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 June 30, 2019
Beginning Balance	$	552	$	1,282		$	1,341	$	10,565		$	1,130	$	10,830		$	1,004	$	26,704
Provision for credit loss expense		187		2			367		335			542		(1,558	)		216		91
Loans charged off		—		—			66		105			0		155			216		542
Recoveries collected		—		—			7		1			—		12			86		106
Ending balance	$	739	$	1,284		$	1,649	$	10,796		$	1,672	$	9,129		$	1,090	$	26,359

Six months ended June 30, 2019
Beginning Balance	$	561	$	1,246		$	1,504	$	11,102		$	951	$	9,893		$	932	$	26,189
Provision for credit loss expense		178		38			326		(146	)		730		(546	)		458		1,038
Loans charged off		—		—			197		161			9		258			485		1,110
Recoveries collected		—		—			16		1			—		40			185		242
Ending balance	$	739	$	1,284		$	1,649	$	10,796		$	1,672	$	9,129		$	1,090	$	26,359

Twelve months ended December 31, 2019
Beginning Balance	$	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		—		—			1,478		1,743			24		1,828			1,253		6,326
Recoveries collected		—		—			92		12			—		155			356		615
Ending balance	$	1,146	$	1,093		$	1,386	$	11,198		$	1,386	$	9,273		$	1,429	$	26,911

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

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

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.

Forallloanportfoliosegmentsexcept1-4familyresidentialpropertiesandconsumer,theCompanypromptlycharges-offloans, orportionsthereof,whenavailableinformationconfirmsthatspecificloansareuncollectiblebasedoninformationthatincludes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action,includingbankruptcy,thatimpairstheborrower’sabilitytoadequatelymeetitsobligations.Forimpairedloansthatare 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 thecollateral.

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 June 30, 2020 (in thousands):

	Collateral								Allowance
	Real Estate		Business Assets		Other		Total		for Credit Losses
Construction and land development	$	532	$	—	$	—	$	532	$	261
Agricultural real estate		—		—		—		—		—
1-4 Family residential properties		3,292		—		—		3,292		157
Multifamily residential properties		1,960		—		—		1,960		—
Commercial real estate		6,858		—		—		6,858		863
Loans secured by real estate		12,642		0		0		12,642		1,281
Agricultural loans	0			—		—	0			—
Commercial and industrial loans	301			3,699		18		4,018		88
Consumer loans		—		—		11	11			—
Total loans	$	12,943	$	3,699	$	29	$	16,671	$	1,369

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, based 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.

The following tables present the credit risk profile of the Company’s loan portfolio on amortized cost basis based on risk rating category and year of origination as of June 30, 2020 (in thousands):

	Term Loans by Origination Year												Revolving
Risk Rating	2020		2019		2018		2017		2016		Prior		Loans		Total
June 30, 2020
Construction & Land Development Loans
Pass	$	56,357	$	61,418	$	4,145	$	2,848	$	519	$	54,361	$	—	$	179,648
Special Mention		—		0		—		—		390		—		—		390
Substandard		—		308		—		532		—		56		—		896
Total	$	56,357	$	61,726	$	4,145	$	3,380	$	909	$	54,417	$	—	$	180,934
Agricultural Real Estate Loans
Pass	$	44,876	$	42,885	$	43,297	$	18,278	$	15,940	$	69,084	$	—	$	234,360
Special Mention		300		3,110		387		143		875		11,186		—		16,001
Substandard		—		0		487		218		67		249		—		1,021
Total	$	45,176	$	45,995	$	44,171	$	18,639	$	16,882	$	80,519	$	—	$	251,382
1-4 Family Residential Property Loans
Pass	$	40,654	$	36,389	$	37,176	$	30,446	$	33,476	$	117,666	$	27,209	$	323,016
Special Mention		200		159		295		1,050		252		1,452		30		3,438
Substandard		55		635		2,036		1,871		1,991		7,719		1,275		15,582
Total	$	40,909	$	37,183	$	39,507	$	33,367	$	35,719	$	126,837	$	28,514	$	342,036
Commercial Real Estate Loans
Pass	$	111,880	$	206,159	$	174,472	$	197,260	$	174,120	$	355,666	$	—	$	1,219,557
Special Mention		1,857		23		4,158		1,781		4,818		2,822		—		15,459
Substandard		1,254		99		1,400		3,115		4,588		19,083		—		29,539
Total	$	114,991	$	206,281	$	180,030	$	202,156	$	183,526	$	377,571	$	—	$	1,264,555
Agricultural Loans
Pass	$	72,118	$	38,483	$	8,353	$	3,169	$	959	$	3,400	$	—	$	126,482
Special Mention		9,754		11,078		296		11		701		35		—		21,875
Substandard		607		43		25		—		—		11		—		686
Total	$	82,479	$	49,604	$	8,674	$	3,180	$	1,660	$	3,446	$	—	$	149,043
Commercial & Industrial Loans
Pass	$	362,238	$	148,476	$	100,766	$	84,972	$	55,893	$	138,743	$	—	$	891,088
Special Mention		1,642		33,847		185		58		407		952		—		37,091
Substandard		1,122		2,328		382		1,371		208		1,638		—		7,049
Total	$	365,002	$	184,651	$	101,333	$	86,401	$	56,508	$	141,333	$	—	$	935,228
Consumer Loans
Pass	$	20,116	$	30,739	$	17,657	$	10,147	$	148	$	9	$	—	$	78,816
Special Mention		5		—		72		1		960		1,154		—		2,192
Substandard		17		30		156		129		140		604		—		1,076
Total	$	20,138	$	30,769	$	17,885	$	10,277	$	1,248	$	1,767	$	—	$	82,084
Total Loans
Pass	$	708,239	$	564,549	$	385,866	$	347,120	$	281,055	$	738,929	$	27,209	$	3,052,967
Special Mention		13,758		48,217		5,393		3,044		8,403		17,601		30		96,446
Substandard		3,055		3,443		4,486		7,236		6,994		29,360		1,275		55,849
Total	$	725,052	$	616,209	$	395,745	$	357,400	$	296,452	$	785,890	$	28,514	$	3,205,262

The following tables present the credit risk profile of the Company’s loan portfolio based on risk rating category ~~and payment activity~~ as of ~~June 30, 2019 and~~ December 31, ~~2018~~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

Construction &
Land Development
Agricultural Real Estate
1-4 Family Residential
Properties

Multifamily Residential
Properties
2019 2018 2019 2018 2019 2018 2019 2018
Pass $ 56,274
$ 49,794
$ 217,643
$ 221,047
$ 334,059
$ 352,583
$ 150,014
$ 163,845
Special Mention 459
471
10,481
7,805
5,518
5,526
7,792
8,144
Substandard 336
354
1,800
2,848
15,566
15,409
9,903
12,062
Doubtful —
—
—
—
—
—
—
—
Total $ 57,069
$ 50,619
$ 229,924
$ 231,700
$ 355,143
$ 373,518
$ 167,709
$ 184,051

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

The following table presents the Company’s loan portfolio aging analysis at June 30, ~~2019~~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
June 30, 2020
Construction and land development	$	85	$	141	$	—	$	226	$	180,708	$	180,934	$	—
Agricultural real estate		6		544		—		550		250,832		251,382		—
1-4 Family residential properties		3,548		1,260		1,676		6,484		335,552		342,036		—
Multifamily residential properties		2,201		0		—		2,201		138,814		141,015		—
Commercial real estate		637		1,146		2,519		4,302		1,119,238		1,123,540		—
Loans secured by real estate		6,477		3,091		4,195		13,763		2,025,144		2,038,907		—
Agricultural loans		0		0		26		26		149,017		149,043		—
Commercial and industrial loans		715		125		2,380		3,220		807,949		811,169		—
Consumer loans		263		54		165		482		81,602		82,084		—
All other loans		—		—		—		—		124,059		124,059		—
Total loans	$	7,455	$	3,270	$	6,766	$	17,491	$	3,187,771	$	3,205,262	$	—
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		—		—		—		0		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
$ —

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 accrualstatus.

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~~2020 and December 31, ~~2018~~2019 (in thousands):

	June 30, 2020						December 31, 2019
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Recorded Balance		Unpaid Principal Balance		Specific Allowance
Loans with a specific allowance:
Construction and land development	$	532	$	532	$	261	$	256	$	256	$	—
Agricultural real estate		—		—		—		—		—		—
1-4 Family residential properties		4,916		5,149		157		5,154		5,351		182
Multifamily residential properties		1,960		1,960		—		4,254		4,254		19
Commercial real estate		6,861		7,337		863		5,904		6,408		587
Loans secured by real estate		14,269		14,978		1,281		15,568		16,269		788
Agricultural loans		88		316		—		85		669		8
Commercial and industrial loans		4,087		5,673		88		7,653		8,789		301
Consumer loans		134		134		—		134		134		1
Total loans	$	18,578	$	21,101	$	1,369	$	23,440	$	25,861	$	1,098
Loans without a specific allowance:
Construction and land development	$	38	$	38	$	—	$	41	$	41	$	—
Agricultural real estate		369		369		—		479		479		—
1-4 Family residential properties		3,807		4,494		—		3,719		4,263		—
Multifamily residential properties		283		283		—		—		—		—
Commercial real estate		1,146		1,583		—		1,721		1,724		—
Loans secured by real estate		5,643		6,767		—		5,960		6,507		—
Agricultural loans		837		609		—		724		140		—
Commercial and industrial loans		817		2,892		—		916		3,065		—
Consumer loans		288		743		—		391		713		—
Total loans	$	7,585	$	11,011	$	—	$	7,991	$	10,425	$	—
Total loans:
Construction and land development	$	570	$	570	$	261	$	297	$	297	$	—
Agricultural real estate		369		369		0		479		479		—
1-4 Family residential properties		8,723		9,643		157		8,873		9,614		182
Multifamily residential properties		2,243		2,243		—		4,254		4,254		19
Commercial real estate		8,007		8,920		863		7,625		8,132		587
Loans secured by real estate		19,912		21,745		1,281		21,528		22,776		788
Agricultural loans		925		925		0		809		809		8
Commercial and industrial loans		4,904		8,565		88		8,569		11,854		301
Consumer loans		422		877		0		525		847		1
Total loans	$	26,163	$	32,112	$	1,369	$	31,431	$	36,286	$	1,098

June 30, 2019 December 31, 2018

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
Agricultural real estate —
—
—
—
—
—
1-4 Family residential properties 4,990
5,061
511
4,565
4,952
234
Multifamily residential properties 2,567
2,567
—
4,465
4,465
—
Commercial real estate 9,687
10,070
1,180
12,517
12,804
1,553
Loans secured by real estate 17,514
17,968
1,691
24,106
24,780
1,801
Agricultural loans 104
688
—
36
504
—
Commercial and industrial loans 5,914
6,236
584
8,292
8,723
1,475
Consumer loans 166
166
2
169
171
3
Total loans $ 23,698
$ 25,058
$ 2,277
$ 32,603
$ 34,178
$ 3,279
Loans without a specific allowance:

Construction and land development $ 46
$ 46
$ —
$ 48
$ 48
$ —
Agricultural real estate 291
291
—
309
309
—
1-4 Family residential properties 3,893
4,108
—
3,680
4,769
—
Multifamily residential properties 130
130
—
7,597
7,597
—
Commercial real estate 1,538
1,394
—
983
1,201
—
Loans secured by real estate 5,898
5,969
—
12,617
13,924
—
Agricultural loans 734
150
—
631
163
—
Commercial and industrial loans 741
2,310
—
1,660
2,027
—
Consumer loans 534
731
—
471
1,006
—
All other loans —
—
—
6
6
—
Total loans $ 7,907
$ 9,160
$ —
$ 15,385
$ 17,126
$ —
Total loans:

Construction and land development $ 316
$ 316
$ —
$ 2,607
$ 2,607
$ 14
Agricultural real estate 291
291
—
309
309
—
1-4 Family residential properties 8,883
9,169
511
8,245
9,721
234
Multifamily residential properties 2,697
2,697
—
12,062
12,062
—
Commercial real estate 11,225
11,464
1,180
13,500
14,005
1,553
Loans secured by real estate 23,412
23,937
1,691
36,723
38,704
1,801
Agricultural loans 838
838
—
667
667
—
Commercial and industrial loans 6,655
8,546
584
9,952
10,750
1,475
Consumer loans 700
897
2
640
1,177
3
All other loans —
—
—
6
6
—
Total loans $ 31,605
$ 34,218
$ 2,277
$ 47,988
$ 51,304
$ 3,279

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

	For the three months ended
	June 30, 2020				June 30, 2019
	Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
Construction and land development	$	590	$	8	$	629	$	8
Agricultural real estate		854		—		956		—
1-4 Family residential properties		8,920		18		9,543		26
Multifamily residential properties		2,374		0		4,522		32
Commercial real estate		8,256		42		14,414		82
Loans secured by real estate		20,994		68		30,064		148
Agricultural loans		902		—		823		1
Commercial and industrial loans		5,167		1		9,929		1
Consumer loans		457		—		742		—
All other loans		—		—		—		—
Total loans	$	27,520	$	69	$	41,558	$	150

	For the six months ended
	June 30, 2020				June 30, 2019
	Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
Construction and land development	$	595	$	15	$	632	$	16
Agricultural real estate		854		—		957		—
1-4 Family residential properties		9,062		37		9,973		51
Multifamily residential properties		2,391		0		4,804		61
Commercial real estate		8,352		84		14,844		160
Loans secured by real estate		21,254		136		31,210		288
Agricultural loans		909		—		773		1
Commercial and industrial loans		6,046		3		10,059		2
Consumer loans		499		—		781		—
All other loans		—		—		—		—
Total loans	$	28,708	$	139	$	42,823	$	291

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
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 $ 632
$ 16
$ 44
$ —
Agricultural real estate 957
—
235
—
1-4 Family residential properties 9,973
51
6,777
28
Multifamily residential properties 4,804
61
302
—
Commercial real estate 14,844
160
8,680
6
Loans secured by real estate 31,210
288
16,038
34
Agricultural loans 773
1
1,061
—
Commercial and industrial loans 10,059
2
7,892
2
Consumer loans 781
—
349
—
All other loans —
—
21
—
Total loans $ 42,823
$ 291
$ 25,361
$ 36

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 these loans ~~modified in troubled debt restructurings~~ included in ~~the~~ impaired loans at June 30, 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.

$2.8 million, respectively.

~~Non Accrual~~

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~~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.

	Nonaccrual with no Allowance for		June 30, 2020		December 31, 2019
	Credit Loss		Nonaccrual		Nonaccrual
Construction and land development	$	—	$	38	$	41
Agricultural real estate		—		369		479
1-4 Family residential properties		3,220		7,299		7,379
Multifamily residential properties		1,960		2,243		3,137
Commercial real estate		2,127		4,412		4,351
Loans secured by real estate		7,307		14,361		15,387
Agricultural loans		228		837		769
Commercial and industrial loans		1,691		4,823		8,441
Consumer loans		130		419		521
Total loans	$	9,356	$	20,440	$	25,118

June 30,
2019 December 31,
2018
Construction and land development $ 46
$ 377
Agricultural real estate 291
309
1-4 Family residential properties 7,150
5,762
Multifamily residential properties 1,574
2,105
Commercial real estate 5,876
8,457
Loans secured by real estate 14,937
17,010
Agricultural loans 778
667
Commercial and industrial loans 6,584
8,990
Consumer loans 695
625
All other loans —
6
Total loans $ 22,994
$ 27,298

Interest income that would have been recorded under the original terms of such nonaccrual loans totaled ~~$1,335,000~~$1,044,000 and ~~$758,000~~$1,335,000 for the six months ended June 30, 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):

	December 31, 2019
Construction and land development	$	256
Agricultural real estate		—
1-4 Family residential properties		371
Multifamily residential properties		2,077
Commercial real estate		2,247
Loans secured by real estate		4,951
Carrying amount		4,951
Allowance for loan losses		(365	)
Carrying amount, net of allowance	$	4,586

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

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 thatdate.

Troubled DebtRestructuring

The balance of troubled debt restructurings ("TDRs") at June 30, ~~2019~~2020 and December 31, ~~2018~~2019 was ~~$7.6~~$6.8 million and ~~$10.0~~$5.8 million,, respectively. There was ~~$834,000~~$239,000 and ~~$1,418,000~~$381,000 in specific reserves established with respect to these loans as of June 30, ~~2019~~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~~2020 and December 31, ~~2018~~2019 (in thousands).

Troubled debt restructurings:	June 30, 2020		December 31, 2019
1-4 Family residential properties	$	1,843	$	1,905
Commercial real estate		1,873		1,746
Loans secured by real estate		3,716		3,651
Agricultural loans		316		669
Commercial and industrial loans		2,673		1,349
Consumer loans		134		134
Total	$	6,839	$	5,803
Performing troubled debt restructurings:
1-4 Family residential properties	$	1,352	$	1,382
Commercial real estate		1,132		1,146
Loans secured by real estate		2,484		2,528
Agricultural Loans		88		40
Commercial and industrial loans		81		128
Consumer loans		3		5
Total	$	2,656	$	2,701

Troubled debt restructurings: June 30, 2019 December 31, 2018
1-4 Family residential properties $ 2,207
$ 2,472
Commercial real estate 2,505
1,706
Loans secured by real estate 4,712
4,178
Agricultural loans 688
499
Commercial and industrial loans 2,029
5,112
Consumer loans 166
167
Total $ 7,595
$ 9,956
Performing troubled debt restructurings:

1-4 Family residential properties $ 1,595
$ 1,769
Commercial real estate 1,050
676
Loans secured by real estate 2,645
2,445
Agricultural Loans 59
—
Commercial and industrial loans 70
—
Consumer loans 5
6
Total $ 2,779
$ 2,451

The following table presents loans modified as TDRs during the six months endedJune 30, ~~2019 and 2018~~,2020, 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, 2020					June 30, 2019
	Number of		Recorded		Type of	Number of		Recorded		Type of
	Modifications		Investment		Modifications	Modifications		Investment		Modifications
1-4 Family residential properties		—	$	—			1	$	46	(b)(c)
Commercial real estate		1		303	(b)		3		1,533	(b)(c)(d)
Loans secured by real estate		1		303			4		1,579
Agricultural loans		2		88	(b)(c)		1		59	(b)
Commercial and industrial loans		3		2,342	(b)		2		70	(b)(c)(d)
Consumer Loans		1		11	(b)		1		12	(c)
Total		7	$	2,744			8	$	1,720

June 30, 2019 June 30, 2018
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)
Commercial real estate 3
1,533
(b)(c)(d) —
—

Loans secured by real estate 4
1,579
1
161

Agricultural loans 1
59
(b) —
—

Commercial and industrial loans 2
70
(b)(c)(d)

Consumer Loans 1
12
(c) —
—

Total 8
$ 1,720
1
$ 161

Type of modifications:

(a) Reduction of stated interest rate of loan

(b)

Change in payment terms

~~(b) Change in payment terms~~

(c)

Extension of maturity date

~~(c) Extension of maturity date~~

(d)

Permanent reduction of the recorded investment

~~(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 no0 loans modified as troubled debt restructurings during the prior twelve months that experienced defaults for six months ended June 30, ~~2019.~~2020. There ~~was one loan~~were 0 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~~$2,256,000 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~~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~~$1,146,000 and ~~$425,000~~$667,000 at June 30, ~~2019~~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 Wealth Management Company and First Mid Insurance. The following table presents gross carrying value and accumulated amortization by major intangible asset class as of June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):

	June 30, 2020				December 31,2019
	Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization
Goodwill not subject to amortization (effective 1/1/02)	$	108,752	$	3,760	$	108,752	$	3,760
Intangibles from branch acquisition		3,015		3,015		3,015		3,015
Core deposit intangibles		32,355		19,410		32,355		17,746
Other intangibles		16,389		4,570		16,129		3,917
	$	160,511	$	30,755	$	160,251	$	28,438

June 30, 2019 December 31, 2018
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
Intangibles from branch acquisition 3,015
3,015
3,015
3,015
Core deposit intangibles 32,355
15,950
32,355
14,017
Other intangibles 16,029
3,283
16,029
2,648
$ 160,134
$ 26,008
$ 160,436
$ 23,440

~~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, ~~2019,~~2020, June 30, ~~2018~~2019 and December 31, ~~2018~~2019 (in thousands):

	June 30, 2020			June 30, 2019			December 31, 2019
Beginning Balance	$	1,444		$	2,101		$	2,101
Valuation reserve		(259	)		(439	)		(380	)
Mortgage servicing rights amortized		(268	)		(172	)		(411	)
I/O Strip		(17	)		146			134
Ending Balance	$	900		$	1,636		$	1,444

June 30, 2019 June 30, 2018 December 31, 2018
Beginning Balance $ 2,101

$844
$ 844
Mortgage servicing rights acquired during period —
425
1,558
Mortgage servicing rights capitalized —
7
7
Valuation reserve (439 ) —
—
Mortgage servicing rights amortized (172 ) (119 ) (308 )
I/O Strip 146
—
—
Ending Balance $ 1,636

$1,157
$ 2,101

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

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Core deposit intangibles	$	821	$	953	$	1,664	$	1,933
Customer list intangibles		327		317		653		635
Mortgage servicing rights		142		553		268		611
	$	1,290	$	1,823	$	2,585	$	3,179

Three months ended June 30, Six months ended June 30,
2019 2018 2019 2018
Core deposit intangibles 953
591
$ 1,933
$ 1,011
Customer list intangibles 317
45
635
91
Mortgage servicing rights 553
80
611
119
$ 1,823
$ 716
$ 3,179
$ 1,221

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 01/01/20-6/30/20	$	2,585
Estimated amortization expense:
For period 7/01/20-12/31/20		2,438
For year ended 12/31/21		4,347
For year ended 12/31/22		3,981
For year ended 12/31/23		3,440
For year ended 12/31/24		2,946
For year ended 12/31/25		2,633

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

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~~June 30, ~~2018~~2020 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~~$350.3 million at June 30, ~~2019, a decrease~~2020, an increase of ~~$40.0~~$142.2 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%~~0.22%.

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~~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~~over- collateralization in the event of counterparty default.

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

	June 30, 2020		December 31, 2019
US Treasury securities and obligations of U.S. government corporations & agencies	$	69,427	$	77,333
Obligations of states and political subdivisions		—		2,375
Mortgage-backed securities: GSE: residential		278,741		128,401
Other Securities		2,120		—
Total	$	350,288	$	208,109

June 30, 2019 December 31, 2018
US Treasury securities and obligations of U.S. government corporations & agencies $ 100,099
$ 130,893
Mortgage-backed securities: GSE: residential 52,165
61,437
Total $ 152,264
$ 192,330

FHLB borrowings were ~~$96~~$104 million and ~~$120~~$114 million at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. At June 30, ~~2019~~2020 the advances were as follows:

Advance		Term (in years)		Interest Rate	Maturity Date
$	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
	4,000,000		1.0	2.00%	May 3, 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

~~$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~~

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.~~

Level 1Valuations 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 2Valuations 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 orliabilities.

Level 3Unobservable 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~~2020 and December 31, ~~2018~~2019 (in thousands):

	Fair Value Measurements Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
June 30, 2020
Available-for-sale securities:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	73,899	$	—	$	73,899	$	—
Obligations of states and political subdivisions		200,697		—		199,906		791
Mortgage-backed securities		425,674		—		425,674		—
Other securities		7,888		—		7,888		—
Total available-for-sale securities		708,158		—		707,367		791
Equity securities		97		97		—		—
Derivative assets: interest rate swaps		42		—		42		—
Total assets	$	708,297	$	97	$	707,409	$	791

Derivative liabilities: interest rate swaps	$	1,829	$	—	$	1,829	$	—

December 31, 2019
Available-for-sale securities:
U.S. Treasury securities and Obligations of U.S. government corporations and agencies	$	107,320	$	—	$	107,320	$	—
Obligations of states and political subdivisions		178,433		—		177,460		973
Mortgage-backed securities		396,126		—		396,126		—
Other securities		3,950		—		3,950		—
Total available-for-sale securities		685,829		—		684,856		973
Equity securities		219		219		—		—
Total assets	$	686,048	$	219	$	684,856	$	973

Derivative liabilities: interest rate swaps	$	325	$	—	$	325	$	—

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
Available-for-sale securities:
U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 193,424
$ —
$ 193,424
$ —
Obligations of states and political subdivisions 186,229
—
185,259
970
Mortgage-backed securities 374,646
—
374,646
—
Other securities 3,391
190
3,201
—
Total available-for-sale securities $ 757,690
$ 190
$ 756,530
$ 970
Derivative liability:
Interest rate swap $ 293
$ —
$ 293
$ —

December 31, 2018
Available-for-sale securities:
U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 198,649
$ —
$ 198,649
$ —
Obligations of states and political subdivisions 192,579
—
191,612
967
Mortgage-backed securities 298,672
—
298,672
—
Other securities 2,374
364
2,010
—
Total available-for-sale securities $ 692,274
$ 364
$ 690,943
$ 967

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

	Obligation of State and Political Subdivisions
	Three months ended				Six months ended
	June 30, 2020		June 30, 2019		June 30, 2020			June 30, 2019
Beginning balance	$	790	$	968	$	973		$	967
Transfers into Level 3		—		—		—			—
Transfers out of Level 3		—		—		—			—
Total gains or losses:
Included in net income		1		2		2			3
Included in other comprehensive income (loss)		—		—		—			—
Purchases, issuances, sales and settlements:
Purchases		—		—		—			—
Issuances		—		—		—			—
Sales		—		—		(184	)		—
Settlements		—		��		—			—
Ending balance	$	791	$	970	$	791		$	970
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	$	—	$	—	$	—		$	—

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
Three months ended Six months ended
June 30, 2019
June 30, 2018
June 30, 2019
June 30, 2018
Beginning balance $ 968
$ —
$ 967
$ —
Transfers into Level 3 —
—
—
—
Transfers out of Level 3 —
—
—
—
Total gains or losses: —
—
Included in net income 2
—
3
—
Included in other comprehensive income (loss) —
—
—
—
Purchases, issuances, sales and settlements:
Purchases —
—
—
—
Issuances —
—
—
—
Sales —
—
—
—
Settlements —
—
—
—
Ending balance $ 970
$ —
$ 970
$ —
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~~2020 was ~~$12,305,000~~$9,708,000 and a fair value of ~~$10,028,000~~$8,358,000 resulting in specific loss exposures of ~~$2,277,000~~.

$1,350,000.

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~~2020 was ~~$3,569,000~~.$2,256,000. 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~~$21,000.

Mortgage Servicing Rights. As of June 30, ~~2019 ,~~2020, mortgage servicing rights had a carrying value of ~~$2,075,000~~$1,422,000 and a fair value of ~~$1,636,000~~$899,000 resulting in a valuation reserve of ~~$439,000.~~$523,000. 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~~2020 and December 31, ~~2018~~2019 (in thousands):

June 30, 2020	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired loans (collateral dependent)	$	8,358	Third party valuations	Discount to reflect realizable value	0% - 40%	(20%)
Foreclosed assets held for sale		21	Third party valuations	Discount to reflect realizable value less estimated selling costs	0% - 40%	(35%)
Mortgage servicing rights		899	Third party valuations	Discount to reflect realizable value	9.0% - 11.0%	(9.1%)

December 31, 2019	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired loans (collateral dependent)	$	12,727	Third party valuations	Discount to reflect realizable value	0% - 40%	(20%)
Foreclosed assets held for sale		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%)

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

~~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~~2020 and December 31, ~~2018~~2019 (in thousands).

June 30, 2019 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% )
Foreclosed assets held for sale 1,479
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% )

December 31, 2018 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% )
Foreclosed assets held for sale

836
Third party valuations Discount to reflect realizable value less estimated selling costs 0 % - 40% ( 35% )

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

	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
June 30, 2020
Financial Assets
Cash and due from banks	$	237,201	$	237,201	$	237,201	$	—	$	—
Federal funds sold		1,286		1,286		1,286		—		—
Certificates of deposit investments		3,890		3,890		—		3,890		—
Available-for-sale securities		708,158		708,158		—		707,367		791
Held-to-maturity securities		15,009		15,216		—		15,216		—
Equity securities		97		97		97		—		—
Loans held for sale		5,981		5,981		—		5,981		—
Loans net of allowance for loan losses		3,160,900		3,095,700		—		—		3,095,700
Interest receivable		16,842		16,482		—		16,482		—
Federal Reserve Bank stock		9,401		9,401		—		9,401		—
Federal Home Loan Bank stock		5,450		5,450		—		5,450		—
Financial Liabilities
Deposits	$	3,385,827	$	3,396,983	$	—	$	2,856,239	$	540,744
Securities sold under agreements to repurchase		350,288		350,306		—		350,306		—
Interest payable		1,922		1,922		—		1,922		—
Federal Home Loan Bank borrowings		103,939		107,286		—		107,286		—
Other borrowings		—		—		—		—		—
Junior subordinated debentures		18,942		14,285		—		14,285		—
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		685,636		685,636		—		684,856		780
Held-to-maturity securities		69,542		69,572		—		69,572		—
Equity securities		412		412		219		—		193
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		—

Carrying
Amount

Fair
Value
Level 1 Level 2 Level 3
June 30, 2019
Financial Assets
Cash and due from banks $ 167,497
$ 167,497
$ 167,497
$ —
$ —
Federal funds sold 919
919
919
—
—
Certificates of deposit investments 6,585
6,585
—
6,585
—
Available-for-sale securities 757,690
757,690
190
756,530
970
Held-to-maturity securities 69,488
69,441
—
69,441
—
Loans held for sale 1,717
1,717
—
1,717
—
Loans net of allowance for loan losses 2,518,467
2,451,641
—
—
2,451,641
Interest receivable 15,650
15,650
—
15,650
—
Federal Reserve Bank stock 9,401
9,401
—
9,401
—
Federal Home Loan Bank stock 2,995
2,995
—
2,995
—
Financial Liabilities

Deposits $ 3,012,490
$ 3,018,325
$ —
$ 2,360,683
$ 657,642
Securities sold under agreements to repurchase 152,264
152,257
—
152,257
—
Interest payable 2,416
2,416
—
2,416
—
Federal Home Loan Bank borrowings 95,826
96,503
—
96,503
—
Junior subordinated debentures 29,084
24,199
—
24,199
—

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.~~

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,~~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:

An entity need not reassess whether any expired or existing contracts containleases.

An entity need not reassess the lease classification for any expired or existingleases.

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

An entity need not reassess initial direct costs for any existingleases.

~~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~~(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, 2020			June 30, 2019			December 31, 2019
Operating lease right-of-use assets	$	15,979		$	12,805		$	17,006
Operating lease liabilities		16,014			12,815			17,007
Weighted-average remaining lease term (in years)		6.8			5.5		7.3
Weighted-average discount rate		2.77	%		3.21	%		3.07	%

June 30, 2019
Operating lease right-of-use assets $ 12,805
Operating lease liabilities 12,815
Weighted-average remaining lease term 5.5 years
Weighted-average discount rate 3.21 %

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,
2020	$	1,609
2021		2,447
2022		2,183
2023		1,838
2024		1,505
Thereafter		9,389
Total lease payments		18,971
Less imputed interest		(2,957	)
Total lease liability	$	16,014

Year ending December 31,
2019 (excluding the six months ended June 30, 2019) $ 1,326
2020 2,573
2021 2,346
2022 2,057
2023 1,276
Thereafter 5,177
Total lease payments 14,755
Less imputed interest (1,940 )
Total lease liability $ 12,815

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

	Three months ended June 30,						Six months ended June 30,
	2020			2019			2020			2019
Operating lease cost	$	736		$	647		$	1,378		$	1,318
Short-term lease cost		7			22			53			45
Variable lease cost		94			432			263			656
Total lease cost		837			1,101			1,694			2,019
Income from subleases		(199	)		(213	)		(392	)		(461	)
Net lease cost	$	638		$	888		$	1,302		$	1,558

Three months ended June 30, Six months ended June 30,
2019 2019
Operating lease cost $ 647
$ 1,318
Short-term lease cost 22
45
Variable lease cost 432
656
Total lease cost 1,101
2,019
Income from subleases (213 ) (461 )
Net lease cost $ 888
$ 1,558

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, 2020				June 30, 2019
Operating cash flows from operating leases		$	1,375			$	1,340

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

Note ~~10 --~~9 – 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, 2020 and December 31, 2019 ~~is as follows~~ (in thousands):

	Balance Sheet Location	Weighted Average Remaining Maturity (Years)	Notional Amount		Estimated Value
June 30, 2020
Fair Value Hedges:
Interest rate swap agreements	Other liabilities	9.1 years	$	14,539	$	(3,763	)
December 31, 2019
Fair Value Hedges:
Interest rate swap agreements	Other liabilities	9.3 years	$	14,748	$	(325	)

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

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

		Three months ended June 30,						Six months ended June 30,
Derivative	Location of Gain (Loss) on Derivatives	2020			2019			2020			2019
Interest rate swap agreements	Interest income on loans	$	(78	)	$	(293	)	$	(1,462	)	$	(293	)

		Three months ended June 30,				Six months ended June 30,
Derivative	Location of Gain (Loss) on Hedged Items	2020		2019		2020		2019
Interest rate swap agreements	Interest income on loans	$	78	$	293	$	1,462	$	293

Three months ended June 30, Six months ended June 30,
Derivative Location of Gain (Loss) on Derivative 2019 2019
Interest rate swap agreement Interest income on loans $ (293 ) $ (293 )

Three months ended June 30, Six months ended June 30,
Derivative Location of Gain (Loss) on Hedged Item 2019 2019
Interest rate swap agreement Interest income on loans $ 293
$ 293

As of June 30, ~~2019,~~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

Carrying Amount of the

Hedged Asset

Cumulative Amount of Fair Value Hedging

Adjustment Included in the Carrying

Amount of the Hedged Asset

Loans

12,752

1,787

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 June 30, 2020 and 2019 (in thousands):

June 30, 2020

Balance

Sheet

Location

Weighted

Average

Remaining

Maturity

(Years)

Notional

Amount

Estimated

Value

Interest rate swap agreements

Other assets

9.2 years

43,517

Interest rate swap agreements

Other liabilities

9.2 years

43,517

(42

)

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 $ 10,076
$ 293

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~~ months ended June 30, ~~2019~~2020 and ~~2018~~.2019. 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

Thisreportmaycontaincertainforward-lookingstatements,suchasdiscussionsoftheCompany’spricingandfeetrends,credit quality and outlook, liquidity, new business results, expansion plans, anticipated expenses, ~~and~~ planned ~~schedules.~~schedules andCOVID-19. TheCompanyintendssuchforward-lookingstatementstobecoveredbythesafeharborprovisionsforforward-lookingstatements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements, which are based on certain assumptionsanddescribefutureplans,strategiesandexpectationsoftheCompany,areidentifiedbyuseofthewords ~~“believe,~~“believe,” ”expect,” ”intend,” ”anticipate,” ”estimate,” ”project,” or similar expressions. Actual results could differ materially from the resultsindicatedbythesestatementsbecausetherealizationofthoseresultsissubjecttomanyrisksanduncertainties,including thosedescribedinItem1A-“RiskFactors”andothersectionsoftheCompany’sAnnualReportonForm10-KandtheCompany’s otherfilingswiththeSEC,andchangesininterestrates,generaleconomicconditionsandthoseintheCompany’smarketarea, legislative/regulatorychanges,monetaryandfiscalpoliciesoftheU.S.Government,includingpoliciesoftheU.S.Treasuryand the Federal Reserve Board, the quality or composition of the loan or investment portfolios and the valuation of the investment portfolio,theCompany’ssuccessinraisingcapitalandeffectingandintegratingacquisitions,demandforloanproducts,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,impairtheabilityoftheCompany'sborrowerstorepayoutstandingloans,impaircollateralvalues,andfurtherincrease theallowanceforcreditlosses,andtheimpactoftheCOVID-19pandemicontheCompany'sfinancialresults,includingpossible lostrevenueandincreasedexpenses(includingcostofcapital),aswellaspossiblegoodwillimpairmentcharges.Furthermore, forward-lookingstatementsspeakonlyasofthedatetheyaremade.Exceptasrequiredunderthefederalsecuritieslawsorthe rules and regulations of the SEC, we do not undertake any obligation to update or review any forward-looking information, whetherasaresultofnewinformation,futureeventsorotherwise.FurtherinformationconcerningtheCompanyanditsbusiness, including a discussion of these and additional factors that could materially affect the Company’s financial results, is included intheCompany’s2019AnnualReportonForm10-Kundertheheadings“Item1.Business"and“Item1A.RiskFactors."

COVID-19 Impact

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 ~~Company’s~~ ~~2018~~ ~~Annual Report~~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 CoronavirusAid,ReliefandEconomicSecurity (“CARES”)ActwassignedintolawattheendofMarch 2020asa$2trillion legislativepackage.ThegoaloftheCARESActistopreventasevereeconomicdownturnthroughvariousmeasures,including directfinancialaidtoAmericanfamiliesandeconomicstimulustosignificantlyimpactedindustrysectors.ManyoftheCARES Act provisions, as well as other recent legislative and regulatory efforts, are expected to have a material impact on ~~Form 10-K under~~financial institutions.TheCompany'sstrongtrackrecordandrevenuediversificationprovideasolidfoundationforearningsandcapital. The Company is focused on supporting its customers, communities and employees during this unique operating environment. Following is a description of the ~~headings “Item 1. Business"~~impact COVID-19 is having, actions taken as a result of COVID-19, and ~~“Item 1A. Risk Factors."~~

~~Acquisitions~~

~~On May 1, 2018,~~certain risks to the Company ~~completed~~that COVID-19 creates or exacerbates, as well as management's outlook on the current COVID-19situation.

Lendingoperationsandaccommodationstocustomers.Beginning in March2020,FirstMidBankoffereda90-daycommercialdeferral program,primarilytohotelandrestaurantborrowers.AsofJune 30, 2020,atotalof$368millionwasdeferred through the program.FirstMidBank also provideda180-daydeferral program to its ~~acquisition~~residential mortgage and other consumer customers. Through June 30, 2020, 230 customers, with balances totaling $3.9 million are participatinginthisprogram.InaccordancewithinteragencyguidanceissuedinMarch2020,theseshort-termdeferralsarenot considered troubled debtrestructurings.

BeginningApril3,2020,withthepassageoftheinitialPaycheckProtectionProgram(“PPP”),administeredbytheSmallBusiness Administration (“SBA”), the Company actively participated in assisting existing and new customers with applications for resourcesthroughtheprogram.PPPloanshaveatwo-yeartermandearninterestat1%.TheCompanybelievesthatmost of ~~First Bank. Financial results for 2018 include~~these loans will ultimately be forgiven by the ~~income and expenses of First Bank & Trust for~~SBA in accordance with the ~~period May 1 through December 31, 2018. At the date~~terms of the ~~acquisition,~~program. As of June 30, 2020, the Companyhasapproved and outstanding2,508PPPloanstotaling $259.3 million with the SBA.ItistheCompany’sunderstanding 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.TheCompanyhasabusinesscontinuityplaninplacethatwasexecutedinMarch2020.Approximatelyhalfofthe Company'sworkforcehavetheabilitytoworkremotelywithsecureconnections.Inaddition,variouspreventativeandpersonal hygienemeasures,inaccordancewithCDCguidelineshavebeenimplemented.Toprotectandensurethesafetyofemployees, 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 withneed.

Assetimpairment.TheCompanydoesnotbelievethatanyimpairmentexistsduetoCOVID-19togoodwillandotherintangible assets, long-lived assets, mortgage servicing rights ("MSRs"), right of use assets, or available-for-sale investment securities at thistime.WhilecertainvaluationassumptionsandjudgementswillchangetoaccountforCOVID-19relatedcircumstances,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.TheCompanycouldabsorbapproximately$140millionoftotalloanlossesbeforecapitallevelswouldfallbelowregulatory 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 sectordetail.

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	$	181,745		6.2	%		52	%	1.75x
(Merchandise $79.4 million)
Hotel		120,394		4.1	%		61	%	1.41x
(67% major chains)
Restaurant		78,538		2.7	%		89	%	2.02x
(79% franchise/drive-thru/limited service)
Oil Related		5,110		0.2	%		54	%	3.74x

The Company maintains access to multiple sources of liquidity. Currently, the Company's total ~~assets was $501 million, including $363~~liquidity sources could provide $1.5 million of ~~loans.~~ total available capacity as of June 30, 2020.

Management's outlook. The ~~fair value~~Company's current financial position is strong and the fundamental earning capabilities of ~~First Bank's deposits was $386 million. Net income before taxes was positively impacted by $3,018,000 due~~its currently existing operations is solid. 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 expensesuncertain economic outlook related to the ~~acquisition of First Bank, comprised primarily of legal, consulting~~COVID-19 crisis and ~~change-in-control costs. During~~ the ~~six months ended June 30, 2019, pre-tax expenses related~~potential forloanlossesandotherassetimpairments,itisanticipatedthatreservelevelswillremainelevatedcomparedtorecenthistorical trends.Allprocesses,proceduresandinternalcontrolsareexpectedtocontinueasoutlinedinexistingapplicablepoliciesdespite remoteworkingstatusofmanyemployees.WhiletheCompanydoesnotcurrentlyanticipateanymaterialchangesordeficiencies to ~~this acquisition totaled $167,000.~~

~~On November 15, 2018,~~its capital or liquidity sources, uncertainties about duration and overall effects on 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.

economy could result in more adverse effects thanexpected.

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~~$20,136,000 and ~~$18,427,000~~$24,297,000 for the six months ended June 30, ~~2019~~2020 and ~~2018~~,2019, respectively. Diluted net income per common share ~~available to common stockholders~~ was ~~$1.45~~$1.20 and ~~$1.38~~$1.45 for the six months ended June 30, ~~2019~~2020 and ~~2018~~.

2019.

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

	Six months ended						Year ended
	June 30, 2020			June 30, 2019			December 31, 2019
Return on average assets		0.99	%		1.26	%		1.25	%
Return on average common equity		7.48	%		9.89	%		9.49	%
Average equity to average assets		13.26	%		12.78	%		13.17	%

Six months ended Year ended
June 30,
2019 June 30,
2018 December 31,
2018
Return on average assets 1.26 % 1.23 % 1.13 %
Return on average common equity 9.89 % 11.06 % 9.59 %
Average equity to average assets 12.78 % 11.09 % 11.77 %

Total assets were ~~$3.8~~$4.5 billion at June 30, ~~2019,~~2020, compared to $3.8 billion as of December 31, ~~2018~~.2019. From December 31, ~~2018~~2019 to June 30, ~~2019,~~2020, cash and ~~interest bearing~~interest-bearing deposits increased ~~$27.0~~$153.4 million, net loan balances ~~decreased $98.4~~increased $494.3 million and investment securities ~~increased $65.5~~decreased $32.3 million. Net loan balances were ~~$2.52~~$3.16 billion at June 30, ~~2019~~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%~~3.37% for the six months ended June 30, ~~2019,~~2020, down from ~~3.73%~~3.69% 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~~$61.5 million compared to net interest income of ~~$50.6~~$63.6 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~~$30.4 million increased ~~$12.4~~$2.2 million or ~~78.1%~~7.7% from ~~$15.8~~$28.2 million for the same period last year. ~~Wealth management revenues increased $3.9 million,~~The increase in non-interest income resulted primarily ~~due the addition of farm management and brokerage revenues~~ from the SCB acquisition, insurance commissions increased approximately $7.0 million, primarily due to revenues 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.~~

wealth management revenues, insurance commissions, security gains and mortgage banking revenue, offset by a decline in service charges.

Total non-interest expense of ~~$58.5~~$53.8 million ~~increased $19.3~~decreased $4.7 million or ~~49.3%~~8.0% from ~~$39.2~~$58.5 million for the same period last year. ~~This increase~~The decrease was primarily due to ~~legal~~declines in occupancy and ~~professional~~equipment expense, FDIC insurance expense, ATM/debit card expense and acquisition costs, ~~and intangibles amortization associated with the acquisition of First Bank and SCB, and~~offset by an increase in ~~salaries and benefits expense.~~

other professional services.

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

	Change in Net Income
	2020 versus 2019
	Three months ended June 30,			Six months ended June 30,
Net interest income	$	269		$	(2,110	)
Provision for loan losses		(6,045	)		(10,579	)
Other income, including securities transactions		297			2,168
Other expenses		4,089			4,668
Income taxes		546			1,692
Decrease in net income	$	(844	)	$	(4,161	)

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

Credit quality is an area of importance to the Company. Total nonperforming loans were $23.1 million at June 30, 2020, compared to $25.8 million at June 30, 2019 ~~compared to $24.7 million at June 30, 2018~~ 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 $2.3 million at June 30, 2020 compared to $3.6 million at June 30, 2019 ~~compared to $2.5 million at June 30, 2018~~ and ~~$2.6~~$3.7 million at December 31, ~~2018.~~2019. The Company’s provision for loan losses for the six months ended June 30, 2020 and 2019 was $11,617,000 and ~~2018 was~~ $1,038,000, ~~and $2,932,000,~~ respectively. Total loans past due 30 days or more were ~~1.19%~~0.55% of loans at June 30, ~~2019~~2020 compared to ~~0.82%~~1.19% at June 30, ~~2018,~~2019, and ~~1.06%~~1.02% of loans at December 31, ~~2018. At June 30, 2019, the composition of the loan portfolio remained similar to the same period last year.~~2019. Loans secured by both commercial and residential real estate comprised approximately ~~66.8%~~63.6% of the loan portfolio as of June 30, ~~2019~~2020 and ~~66.1%~~67.5% 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, 2020 and 2019 and ~~2018~~ ~~and~~ December 31, ~~2018~~2019 was ~~13.92%~~14.07%, ~~13.16%~~13.92% 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, ~~2019~~2020 and ~~2018~~2019, and December 31, ~~2018~~2019 was ~~14.82%~~15.19%, ~~13.97%~~14.82% 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, 2020 and 2019, were $615 million and ~~2018~~ ~~were~~ $538 million, ~~and $512 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~~Several 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 FDICregulations:

•

Surcharges on large banks (total consolidated assets of less than $10 billion) ended; the last surcharge on largebanks 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 assessment for the first quarter of 2020.

The Company expensed $382,000 and $464,000 ~~and $514,000~~ for ~~this~~the assessment during the first six months of 2020 and 2019, ~~and~~ ~~2018~~, 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~~ 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~~

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: ratios:

(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 iswas 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~~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~~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 into 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 theCompany.

~~Allowance for Loan Losses.~~ The Company believes the allowance for loan losses is the critical accounting policy that requires the most significant judgments and assumptions used in the preparation of its consolidated financial statements. 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 and experience with credit decisions and related outcomes. The allowance for loan losses represents the best estimate of losses inherent in the existing loan portfolio. The allowance for loan losses is increased by the provision for loan losses charged to expense 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.

The Company estimates the appropriate level of allowance for loan losses by separately evaluating impaired and non-impaired loans. A specific allowance is assigned to an impaired loan when expected cash flows or collateral do not justify the carrying amount of the loan. The methodology used to assign an 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 losses on each loan segment with similar risk characteristics, adjusted for qualitative factors including the volume and severity of identified classified loans, 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. 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.

~~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.

Allowance for Credit Losses - Held-to-Maturity Securities. Currently all 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 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 uses relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts.

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. Adjustments to historical loss information are made for relevant factors to each pool including merger & acquisition activity, economic conditions, changes in policies, procedures & underwriting, and concentrations. The Company estimates the appropriate level of allowance for credit losses for impaired loans by evaluating them separately. A specific allowance is assigned to an impaired loan when expected cash flows or collateral are less than the carrying amount of the loan.

Allowance for Credit Losses - Off-Balance Sheet Credit Exposures. The Company estimates expected credit losses over the contractual period that the Company is exposed to credit risk via a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is included in other liabilities in the 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.

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~~June 30, ~~2018~~2020 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 activemarkets.

•

Level2—inputsincludequotedpricesforsimilarassetsandliabilitiesinactivemarkets,quotedpricesofidentical 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 financialinstrument.

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

•

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

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. Thefederal 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~~ 1,056,000and ~~$963,000~~1,085,000 for ~~2019~~2020 and ~~2018,~~2019, respectively were 3.31% and 3.63% at June 30, ~~2019~~2020 and ~~3.66% at~~ June 30, ~~2018.~~

2019.

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, ~~2019~~2020 and ~~2018~~2019 in the following table (dollars in thousands):

	Three months ended June 30, 2020								Three months ended June 30, 2019
	Average					Average			Average					Average
	Balance			Interest		Rate			Balance			Interest		Rate
Assets
Interest-bearing deposits with other financial institutions	$	152,090		$	55		0.15	%	$	81,986		$	555		2.72	%
Federal funds sold		1,069			—		0.00	%		708			4		2.27	%
Certificates of deposit		4,154			21		2.03	%		6,736			37		2.20	%
Investment securities:
Taxable		507,466			2,751		2.17	%		632,548			4,094		2.59	%
Tax-exempt (1)		182,585			1,678		3.68	%		184,838			1,699		3.68	%
Loans net of unearned income (TE) (2)		3,095,468			31,566		4.10	%		2,563,960			31,719		4.96	%
Total earning assets		3,942,832			36,071		3.68	%		3,470,776			38,108		4.40	%
Cash and due from banks		80,492								74,459
Premises and equipment		59,155								59,407
Other assets		254,386								248,349
Allowance for loan losses		(36,215	)							(27,165	)
Total assets	$	4,300,650							$	3,825,826
Liabilities and Stockholders' Equity
Interest-bearing deposits
Demand deposits	$	1,464,173		$	697		0.19	%	$	1,284,511		$	1,645		0.51	%
Savings deposits		465,281			98		0.08	%		442,772			155		0.14	%
Time deposits		541,413			2,310		1.72	%		658,723			3,140		1.91	%
Total Interest bearing deposits		2,470,867			3,105		0.51	%		2,386,006			4,940		0.83	%
Securities sold under agreements to repurchase		301,810			158		0.21	%		153,872			215		0.56	%
FHLB advances		114,368			505		1.78	%		108,044			696		2.58	%
Federal funds purchased		—			—		0.00	%		115			1		3.49	%
Junior subordinated debt		18,915			174		3.70	%		29,056			406		5.60	%
Other debt		1,868			11		2.37	%		550			—		—	%
Total borrowings		436,961			848		0.78	%		291,637			1,318		1.81	%
Total interest-bearing liabilities		2,907,828			3,953		0.55	%		2,677,643			6,258		0.94	%
Non interest-bearing demand deposits		799,332					0.43	%		606,170					0.76	%
Other liabilities		50,804								43,136
Stockholders' equity		542,686								498,877
Total liabilities & equity	$	4,300,650							$	3,825,826
Net interest income				$	32,118							$	31,850
Net interest spread							3.13	%							3.46	%
Impact of non interest-bearing funds							0.12	%							0.18	%
TE Net yield on interest-bearing assets							3.25	%							3.64	%

The tax-exempt income is shown on a tax equivalent basis.

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, 2020								Six months ended June 30, 2019
	Average					Average			Average					Average
	Balance			Interest		Rate			Balance			Interest		Rate
Assets
Interest-bearing deposits with other financial institutions	$	87,957		$	147		0.34	%	$	97,019		$	1,252		2.59	%
Federal funds sold		998			2		0.50	%		686			7		2.06	%
Certificates of deposit		4,609			52		2.27	%		7,040			75		2.15	%
Investment securities:
Taxable		525,981			6,090		2.32	%		594,788			7,905		2.66	%
Tax-exempt (1)		178,173			3,260		3.66	%		200,517			3,469		3.46	%
Loans net of unearned income (TE) (2)		2,899,259			61,781		4.29	%		2,593,226			63,999		4.98	%
Total earning assets		3,696,977			71,332		3.88	%		3,493,276			76,707		4.42	%
Cash and due from banks		86,888								69,422
Premises and equipment		59,316								59,385
Other assets		252,872								248,674
Allowance for loan losses		(33,102	)							(26,991	)
Total assets	$	4,062,951							$	3,843,766
Liabilities and Stockholders' Equity
Interest-bearing deposits
Demand deposits	$	1,364,331		$	1,789		0.26	%	$	1,309,927		$	3,267		0.50	%
Savings deposits		450,381			217		0.10	%		439,694			307		0.14	%
Time deposits		555,773			4,960		1.79	%		639,656			5,744		1.81	%
Total Interest-bearing deposits		2,370,485			6,966		0.59	%		2,389,277			9,318		0.79	%
Securities sold under agreements to repurchase		252,252			352		0.28	%		168,090			475		0.57	%
FHLB advances		117,257			1,085		1.86	%		113,870			1,419		2.51	%
Federal funds purchased		1,055			10		1.91	%		58			1		3.48	%
Junior subordinated debt		18,894			392		4.17	%		29,035			844		5.86	%
Other debt		1,319			16		2.44	%		3,680			—		—	%
Total borrowings		390,777			1,855		0.95	%		314,733			2,739		1.75	%
Total interest-bearing liabilities		2,761,262			8,821		0.64	%		2,704,010			12,057		0.90	%
Non interest-bearing demand deposits		713,960					0.51	%		605,735					0.73	%
Other liabilities		49,022								42,882
Stockholders' equity		538,707								491,139
Total liabilities & equity	$	4,062,951							$	3,843,766
Net interest income				$	62,511							$	64,650
Net interest spread							3.24	%							3.52	%
Impact of non interest-bearing funds							0.13	%							0.17	%
TE Net yield on interest-earning assets							3.37	%							3.69	%

The tax-exempt income is shown on a tax equivalent basis.

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.

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 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.~~

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~~ months ended June 30, ~~2019,~~2020, compared to the same ~~periods~~period in ~~2018~~2019 (in thousands):

	Three months ended June 30, 2020 compared to 2019 Increase / (Decrease)									Six months ended June 30, 2020 compared to 2019 Increase / (Decrease)
	Total									Total
	Change			Volume (1)			Rate (1)			Change			Volume (1)			Rate (1)
Earning Assets:
Interest-bearing deposits	$	(500	)	$	1,764		$	(2,264	)	$	(1,105	)	$	(107	)	$	(998	)
Federal funds sold		(4	)		9			(13	)		(5	)		6			(11	)
Certificates of deposit investments		(16	)		(13	)		(3	)		(23	)		(34	)		11
Investment securities:		—									—
Taxable		(1,343	)		(738	)		(605	)		(1,815	)		(862	)		(953	)
Tax-exempt (2)		(21	)		(21	)		—			(209	)		(402	)		193
Loans (2) (3)		(153	)		23,931			(24,084	)		(2,218	)		15,440			(17,658	)
Total interest income		(2,037	)		24,932			(26,969	)		(5,375	)		14,041			(19,416	)
Interest-Bearing Liabilities:
Interest-bearing deposits
Demand deposits		(948	)		1,325			(2,273	)		(1,478	)		383			(1,861	)
Savings deposits		(57	)		51			(108	)		(90	)		21			(111	)
Time deposits		(830	)		(533	)		(297	)		(784	)		(723	)		(61	)
Securities sold under agreements to repurchase		(57	)		618			(675	)		(123	)		422			(545	)
FHLB advances		(191	)		244			(435	)		(334	)		118			(452	)
Federal Funds Purchased		(1	)		(1	)		—			9			11			(2	)
Junior subordinated debt		(232	)		(118	)		(114	)		(452	)		(247	)		(205	)
Other debt		11			11			—			16			—			16
Total interest expense		(2,305	)		1,597			(3,902	)		(3,236	)		(15	)		(3,221	)
Net interest income	$	268		$	23,335		$	(23,067	)	$	(2,139	)	$	14,056		$	(16,195	)

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.

The tax-exempt income is shown on a tax-equivalent basis.

Three months ended June 30, 2019 compared to 2018 Increase / (Decrease) Six months ended June 30, 2019 compared to 2018
Increase / (Decrease)

Total
Change
Volume (1) Rate (1)
Total
Change
Volume (1) Rate (1)
Earning Assets:
Interest-bearing deposits $ 479
$ 383
$ 96
$ 1,116
$ 988
$ 128
Federal funds sold 2
—
2
4
1
3
Certificates of deposit investments 25
23
2
54
52
2
Investment securities:

Taxable 682
1,331
(649 ) 1,611
1,245
366
Tax-exempt (2) 96
141
(45 ) 348
590
(242 )
Loans (2) (3) 6,196
3,833
2,363
17,322
11,731
5,591
Total interest income 7,480
5,711
1,769
20,455
14,607
5,848
Interest-Bearing Liabilities:

Interest-bearing deposits

Demand deposits 1,043
74
969
2,134
220
1,914
Savings deposits 10
56
(46 ) 25
71
(46 )
Time deposits 2,217
518
1,699
4,227
1,274
2,953
Securities sold under agreements to repurchase 150
3
147
351
11
340
FHLB advances 221
43
178
669
322
347
Federal Funds Purchased (21 ) (81 ) 60
(33 ) (78 ) 45
Junior subordinated debt 57
18
39
236
80
156
Other debt (96 ) (47 ) (49 ) (191 ) (73 ) (118 )
Total interest expense 3,581
584
2,997
7,418
1,827
5,591
Net interest income $ 3,899
$ 5,127
$ (1,228 ) $ 13,037
$ 12,780
$ 257

Nonaccrual loans have been included in the average balances.

~~(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 on a tax-equivalent basis.~~

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

~~The tax effected~~

Tax equivalent net interest income ~~increased $13.1~~decreased $2.1 million, or, ~~25.5%~~to 3.3%, to ~~$64.7~~$62.5 million for the six months ended June 30, ~~2019,~~2020, from ~~$51.6~~$64.7 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 months ended June 30, ~~2019,~~2020, average earning assets increased ~~by $705.0~~$203.7 million, or ~~25.3%~~5.8%, and average interest-bearing liabilities increased ~~$527.2~~$57.3 million or ~~24.2%~~2.1%, compared with average balances for the same period in ~~2018~~.

2019.

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

•

Average interest-bearing deposits with other financial institutions decreased $9.1 million or 9.3%.

•

Average federal funds sold increased $0.3 million or 45.5%.

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

•

Average certificates of deposits investments decreased $2.4 million or 34.5%

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

•

Average loans increased by $306 million or 11.8%.

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

•

Average securities decreased by $91.2 million or 11.5%.

~~Average loans increased by $492.0 million or 23.4%~~

•

Average interest-bearing customer deposits decreased by $18.8 million or 0.8%.

~~Average securities increased by $127.9 million or 19.2%~~

•

Average securities sold under agreements to repurchase increased by $84.2 million or 50.1%.

~~Average interest-bearing customer deposits increased by $490.4 million or 25.8%~~

•

Average borrowings and other debt decreased by $8.1 million or 5.5%.

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

•

Net interest margin decreased to 3.37% for the first six months of 2020 from 3.69% for the first six months of 2019.

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

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

Provision for Loan Losses

The provision for loan losses for the six months ended June 30, 2020 and 2019 was $11,617,000 and ~~2018~~ ~~was~~ $1,038,000, ~~and $2,932,000,~~ 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~~$1,819,000 for the six months ended June 30, ~~2019,~~2020, compared to net charge offs of ~~$864,000~~$868,000 for June 30, ~~2018.~~2019. Nonperforming loans were ~~$25.8~~$23.1 million and ~~$24.7~~$25.8 million as of June 30, ~~2019~~2020 and ~~2018,~~2019, 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~~ months ended June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):

	Three months ended June 30,										Six months ended June 30,
	2020		2019		$ Change			% Change			2020		2019		$ Change			% Change
Wealth management revenues	$	3,827	$	3,587	$	240			6.7	%	$	7,453	$	7,232	$	221			3.1	%
Insurance commissions		4,088		3,760		328			8.7	%		10,709		9,315		1,394			15.0	%
Service charges		1,111		1,959		(848	)		-43.3	%		2,889		3,761		(872	)		-23.2	%
Security gains, net		287		218		69			31.7	%		818		272		546			200.7	%
Mortgage banking revenue, net		1,236		346		890			257.2	%		1,544		585		959			163.9	%
ATM / debit card revenue		2,239		2,202		37			1.7	%		4,226		4,218		8			0.2	%
Bank Owned Life Insurance		428		447		(19	)		-4.3	%		859		877		(18	)		-2.1	%
Other		669		1,069		(400	)		-37.4	%		1,897		1,967		(70	)		-3.6	%
Total other income	$	13,885	$	13,588	$	297			2.2	%	$	30,395	$	28,227	$	2,168			7.7	%

Three months ended June 30, Six months ended June 30,
2019 2018 $ Change 2019 2018 $ Change
Wealth management revenues $ 3,587
$ 1,599
$ 1,988
$ 7,232
$ 3,341
$ 3,891
Insurance commissions 3,760
838
2,922
9,315
2,325
6,990
Service charges 1,959
1,803
156
3,761
3,438
323
Security gains, net 218
881
(663 ) 272
901
(629 )
Mortgage banking revenue, net 346
410
(64 ) 585
571
14
ATM / debit card revenue 2,202
1,860
342
4,218
3,464
754
Bank Owned Life Insurance 447
315
132
877
591
286
Other 1,069
655
414
1,967
1,217
750
Total other income $ 13,588
$ 8,361
$ 5,227
$ 28,227
$ 15,848
$ 12,379

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

•

Wealth management revenues increased due to an increase in farm real estate brokerage fees offset by declines in other market-based fees.

•

Insurance commissions increased due to an increase in contract bond revenue offset by less commission and contingency income for the period compared to the same period last year.

Wealth management revenues increased $1,988,000 or 124.3% to $3,587,000 from $1,599,000 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.

•

Fees from service charges decreased due to a decline in overdraft fees primarily resulting from increased assistance related to COVID-19 such as stimulus payments and increased unemployment benefits and less spending during the shelter-in-place period.

•

Gains from the sale of securities during the second quarter of 2020 was similar compared to the same period last year.

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

•

The increase in mortgage banking income was due to an increase in mortgage refinancing activity and fees from loans sold in the secondary market. Loans sold balances were as follows:

•

$65.7 million (representing 419 loans) for the

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

•

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

~~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 remained similar to the same period last year.

•

Bank owned life insurance income decreased due to a slight decline in the change in cash surrender value compared to the same period last year.

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.

•

Other income declined primarily due an increase in waived fees and decreases in fees charged compared to the same period last year.

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~~2020 compared to the same period in ~~2018~~:2019:

•

Wealth management revenues increased due to an increase in farm real estate brokerage fees offset by declines in other market-based fees.

•

Insurance commissions increased primarily due to increases in contract bond revenue and contingency income.

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.

•

Sale of securities resulted in greater net securities gains compared to the same period last year primarily due to an increase in called securities during the first quarter of 2020 resulting from the decline in interest rates.

~~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.~~

•

The increase in mortgage banking income was due to an increase in mortgage refinancing activity and fees from loans sold in the secondary market. Loans sold balances were as follows:

•

$86.3 million (representing 570 loans) for the six months ended June 30, 2020

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.

•

$34.4 million (representing 270 loans) for the six months ended June 30, 2019

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

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

~~$34.4 million (representing 270 loans) for the six months ended June 30, 2019~~

~~$28.4 million (representing 222 loans) for the six 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 remained similar to the same period last year.

•

Bank owned life insurance income decreased due to a slight decline in the change in cash surrender value compared to the same period last year.

Revenue from ATMs and debit cards increased $754,000 or 21.8% to $4,218,000 from $3,464,000 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.

•

Other income declined primarily due an increase in waived fees and decreases in fees charged and activity from First Mid Captive that did not occur in the same period last year, offset by fee income received from derivatives transactions.

Bank owned life insurance income increased $286,000 or 48.4%. 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 or 61.6% to $1,967,000 from $1,217,000 primarily due to increases in miscellaneous fees and revenues from SCB and First Bank acquisitions.~~

Other Expense

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

	Three months ended June 30,											Six months ended June 30,
	2020			2019		$ Change			% Change			2020			2019		$ Change			% Change
Salaries and employee benefits	$	15,455		$	15,565	$	(110	)		-0.7	%	$	31,955		$	32,139	$	(184	)		-0.6	%
Net occupancy and equipment expense		4,141			4,543		(402	)		-8.8	%		8,383			8,998		(615	)		-6.8	%
Net other real estate owned expense		(2	)		188		(190	)		-101.1	%		(48	)		241		(289	)		-119.9	%
FDIC insurance		289			197		92			46.7	%		382			476		(94	)		-19.7	%
Amortization of intangible assets		1,290			1,823		(533	)		-29.2	%		2,585			3,179		(594	)		-18.7	%
Stationery and supplies		275			264		11			4.2	%		543			551		(8	)		-1.5	%
Legal and professional		1,489			1,304		185			14.2	%		2,887			2,498		389			15.6	%
Marketing and donations		314			481		(167	)		-34.7	%		795			935		(140	)		-15.0	%
ATM/debit card expense		274			829		(555	)		-66.9	%		879			1,632		(753	)		0.0	%
Other operating expenses		2,573			4,993		(2,420	)		-48.5	%		5,468			7,848		(2,380	)		-30.3	%
Total other expense	$	26,098		$	30,187	$	(4,089	)		-13.5	%	$	53,829		$	58,497	$	(4,668	)		-8.0	%

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~~2020 compared to the same period in ~~2018:~~2019:

•

The decrease in salaries and employee benefits, the largest component of other expense, is primarily due to an increase in deferred loan origination costs, offsetbyincreasesformeritraisesandapplicablepayrolltaxes, incentive compensation and employee group insurance costs.Therewere828and826full-timeequivalentemployees at June 30, 2020 and 2019,respectively. June 30, 2020 2019

•

The decrease in occupancy and equipment expense was due to expenses resulting from closure of branches during the same period last year and a decrease in rent and maintenance expenses in the current year period due to these closures.

•

The decrease in net other real estate owned expense was primarily due to more gains on properties sold during 2020 than properties sold during2019 and a decrease in property maintenance expense due to less properties currently owned.

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.

•

Expenseforamortizationofintangibleassetsdecreaseddue to less amortization for core deposit intangibles and a decrease in the amount of mortgage servicing rights impairment reserverecorded.three months ended June 30, 2020 and 2019

•

The decline in other operatingexpenses was primarily due to decreases in loan collection expense and acquisitioncosts offset by an increase in data processing costs and dealer referral fees.

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.

•

Onanetbasis,allothercategoriesofoperatingexpensesincreased slightly during the period compared to last year. The increase is primarily due to an increase in legal and professional expenses offset by a decrease in marketing and promotion expense.

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.

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

2019:

Salaries and employee benefits, the largest component of other expense, increased $10,888,000 or 51.2% to $32,139,000 from $21,251,000. 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

•

The decrease in salaries and employee benefits, the largest component of other expense, is primarily due to a decrease in bonus accrual due to lower expected achievement and an increase in deferred loan origination costs, offsetbyincreasesformeritraisesandapplicablepayrolltaxes and incentive compensation.Therewere828and826full-timeequivalentemployees at June 30, 2020 and 2019,respectively. June 30, 2020 2019

•

The decline in other operatingexpenses was primarily due to decreases in loan collection expense and acquisitioncosts offset by an increase in data processing costs and dealer referral fees.

•

Onanetbasis,allothercategoriesofoperatingexpensesincreased primarily due an increase in legal and professional expenses offset by a Small Bank Assessment credit from the FDIC and a decrease in marketing and promotion expenses.

Income Taxes

Totalincometaxexpenseamountedto$6.3 million(23.7%effectivetaxrate)forthesix months ended June 30, ~~2019 and 2018, respectively.~~

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 or 81.1% to $9,480,000 in 2019 from $5,235,000 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 $142,000 or 3.1% to $4,460,000 in 2019 from $4,602,000 in~~ ~~2018. The decrease is primarily due to decreases FDIC insurance assessments and legal and professional fees.~~

~~Income Taxes~~

~~Total income tax expense amounted~~2020,compared to $8.0 million (24.7% effective tax rate) for the ~~six months ended June 30, 2019, compared to $6.0 million (24.4% 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.~~

2017.

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~~2020 and December 31, ~~2018~~2019 (dollars in thousands):


	June 30, 2019				December 31, 2018				June 30, 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	%	$	88,009		1.85	%	$	175,970		2.39	%
Obligations of states and political subdivisions	181,353		2.96	%	193,195		2.94	%		191,120		2.92	%		172,460		2.98	%
Mortgage-backed securities: GSE residential	370,752		2.83	%	304,372		2.86	%		412,175		2.39	%		391,307		2.79	%
Other securities	3,278		3.63	%	2,278		3.58	%		7,841		4.93	%		4,028		3.44	%
Total securities	$	816,906	2.72	%	$	770,661	2.72	%	$	699,145		2.50	%	$	743,765		2.83	%

At June 30, ~~2019,~~2020, the Company’s investment portfolio ~~increased~~decreased by ~~$46.2~~$44.6 million from December 31, ~~2018~~.2019 primarily 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~~2020 for certain investment securities (in thousands):

					Average Credit Rating of Fair Value at June 30, 2020 (1)
	Amortized Cost		Estimated Fair Value		AAA		AA +/-		A +/-		BBB +/-		< BBB -		Not rated
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	73,000	$	73,899	$	—	$	73,899	$	—	$	—	$	—	$	—
Obligations of state and political subdivisions		191,120		200,697		20,082		131,711		46,656		—		—		2,248
Mortgage-backed securities (2)		412,175		425,674		1,087		—		—		—		—		424,587
Other securities		7,756		7,888		—		—		—		—		1,046		6,842
Total available-for-sale	$	684,051	$	708,158	$	21,169	$	205,610	$	46,656	$	—	$	1,046	$	433,677
Held-to-maturity:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	15,009	$	15,216	$	—	$	15,216	$	—	$	—	$	—	$	—
Equity securities:
Federal Agricultural Mtg Corp	$	85	$	97	$	—	$	—	$	—	$	—	$	—	$	97

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

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.

Amortized Cost Estimated Fair Value Average Credit Rating of Fair Value at June 30, 2019 (1)
AAA AA +/- A +/- BBB +/- < BBB - Not rated
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 192,035
$ 193,424
$ —
$ 193,424
$ —
$ —
$ —
$ —
Obligations of state and political subdivisions 181,353
186,229
17,338
119,839
46,946
504
—
1,602
Mortgage-backed securities (2) 370,752
374,646
1,055
—
—
—
—
373,591
Other securities 3,278
3,391
—
—
—
2,007
—
1,384
Total available-for-sale $ 747,418
$ 757,690
$ 18,393
$ 313,263
$ 46,946
$ 2,511
$ —
$ 376,577
Held-to-maturity:
U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 69,488
$ 69,441
$ —
$ 69,441
$ —
$ —
$ —
$ —

~~(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 amortizedcost;

•

how long the decline in fair value hasexisted;

~~how much fair value has declined below amortized cost;~~

•

the financial condition of theissuers;

~~how long the decline in fair value has existed;~~

•

contractual or estimated cash flows of thesecurity;

~~the financial condition of the issuers;~~

•

underlying supporting collateral;

~~contractual or estimated cash flows of the security;~~

•

past events, current conditions andforecasts;

~~underlying supporting collateral;~~

•

significant rating agency changes on the issuer;and

~~past events, current conditions and forecasts;~~

•

theCompany’sintentandabilitytoholdthesecurityforaperiodoftimesufficienttoallowforanyanticipatedrecovery in fair value.

~~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~~2020 and December 31, ~~2018~~2019 (in thousands):

	June 30, 2020					December 31, 2019
	Amortized Cost		% Outstanding Loans			Amortized Cost		% Outstanding Loans
Construction and land development	$	180,934		5.6	%	$	94,142		3.5	%
Agricultural real estate		251,382		7.8	%		240,241		8.9	%
1-4 Family residential properties		342,036		10.7	%		336,427		12.5	%
Multifamily residential properties		141,015		4.4	%		153,948		5.7	%
Commercial real estate		1,123,540		35.1	%		995,702		36.9	%
Loans secured by real estate		2,038,907		63.6	%		1,820,460		67.5	%
Agricultural loans		149,043		4.6	%		136,124		5.1	%
Commercial and industrial loans		811,169		25.3	%		528,973		19.6	%
Consumer loans		82,084		2.6	%		83,183		3.1	%
All other loans		124,059		3.9	%		126,607		4.7	%
Total loans	$	3,205,262		100.0	%	$	2,695,347		100.0	%

June 30, 2019 % Outstanding
Loans December 31, 2018 % Outstanding
Loans
Construction and land development $ 57,069
2.2 % $ 50,619
1.9 %
Agricultural real estate 229,924
9.0 % 231,700
8.8 %
1-4 Family residential properties 355,143
13.9 % 373,518
14.1 %
Multifamily residential properties 167,709
6.6 % 184,051
7.0 %
Commercial real estate 888,711
35.1 % 906,850
34.2 %
Loans secured by real estate 1,698,556
66.8 % 1,746,738
66.0 %
Agricultural loans 118,216
4.6 % 135,877
5.1 %
Commercial and industrial loans 530,405
20.8 % 557,011
21.1 %
Consumer loans 84,907
3.3 % 91,516
3.5 %
All other loans 114,459
4.5 % 113,377
4.3 %
Total loans $ 2,546,543
100.0 % $ 2,644,519
100.0 %

~~Gross loan~~

Loan balances ~~decreased $98.0~~increased $509.9 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.18.9%. The balance of real estate loans held for sale, included in the balances shown above, amounted to ~~$1,717,000~~$6.0 million and ~~$1,508,000~~$1.8 million as of June 30, ~~2019~~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~~2020 and December 31, ~~2018~~2019 (dollars in thousands):

	June 30, 2020					December 31, 2019
	Principal balance		% Outstanding Loans			Principal balance		% Outstanding loans
Central region	$	630,677		19.7	%	$	568,256		21.1	%
Sullivan region		419,916		13.1	%		404,169		15.0	%
Decatur region		695,217		21.7	%		602,716		22.3	%
Peoria region		545,280		17.0	%		443,526		16.5	%
Highland region		828,552		25.8	%		547,156		20.3	%
Southern region		85,620		2.7	%		129,524		4.8	%
Total all regions	$	3,205,262		100.0	%	$	2,695,347		100.0	%

June 30, 2019 December 31, 2018
Principal
balance % Outstanding
Loans Principal
balance % Outstanding
loans
Central region $ 544,426
21.4 % $ 571,909
21.7 %
Sullivan region 384,967
15.1 % 375,407
14.2 %
Decatur region 596,906
23.5 % 501,743
19.0 %
Peoria region 377,208
14.8 % 291,283
11.0 %
Highland region 519,882
20.4 % 518,881
19.6 %
Southern region 123,154
4.8 % 133,225
5.0 %
Soy Capital Bank —
— % 252,071
9.5 %
Total all regions $ 2,546,543
100.0 % $ 2,644,519
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~~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, 2020					December 31, 2019
	Principal balance		% Outstanding Loans			Principal balance		% Outstanding Loans
Other grain farming	$	330,452		10.31	%	$	301,469		11.18	%
Lessors of non-residential buildings		401,458		12.52	%		300,611		11.15	%
Lessors of residential buildings & dwellings		293,677		9.16	%		284,378		10.55	%
Other gambling industries		124,881		3.90	%		90,429		3.36	%
Hotels and motels		126,472		3.95	%		120,735		4.48	%
Nursing care facilities (skilled nursing)		117,430		3.66	%		92,452		3.43	%

June 30, 2019 December 31, 2018

Principal
balance

% Outstanding
Loans

Principal
balance

% Outstanding
Loans
Other grain farming $ 264,140
10.37 % $ 276,142
10.44 %
Lessors of non-residential buildings 235,032
9.23 % 250,495
9.47 %
Lessors of residential buildings & dwellings 288,422
11.33 % 289,169
10.93 %
Hotels and motels 127,094
4.99 % 129,216
4.89 %
Other Gambling Industries 90,060
3.54 % 105,959
3.98 %

~~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~~risk- based capital.

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

	Maturity (1)
	One year or less(2)		Over 1 through 5 years		Over 5 years		Total
Construction and land development	$	41,759	$	67,998	$	71,177	$	180,934
Agricultural real estate		26,273		72,509		152,600		251,382
1-4 Family residential properties		23,072		68,823		250,141		342,036
Multifamily residential properties		16,957		73,652		50,406		141,015
Commercial real estate		115,257		490,968		517,315		1,123,540
Loans secured by real estate		223,318		773,950		1,041,639		2,038,907
Agricultural loans		115,380		28,521		5,142		149,043
Commercial and industrial loans		189,921		543,508		77,740		811,169
Consumer loans		6,835		60,396		14,853		82,084
All other loans		18,600		30,504		74,955		124,059
Total loans	$	554,054	$	1,436,879	$	1,214,329	$	3,205,262

Based upon remaining contractual maturity.

Includes demand loans, past due loans and overdrafts.

Maturity (1)
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
Agricultural real estate 14,637
78,818
136,469
229,924
1-4 Family residential properties 26,975
70,871
257,297
355,143
Multifamily residential properties 11,254
111,814
44,641
167,709
Commercial real estate 67,152
390,431
431,128
888,711
Loans secured by real estate 142,107
664,091
892,358
1,698,556
Agricultural loans 96,060
18,737
3,419
118,216
Commercial and industrial loans 200,366
251,890
78,149
530,405
Consumer loans 4,731
70,554
9,622
84,907
All other loans 14,208
30,491
69,760
114,459
Total loans $ 457,472
$ 1,035,763
$ 1,053,308
$ 2,546,543

~~(1) Based upon remaining contractual maturity.~~

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

As of June 30, ~~2019,~~2020, loans with maturities over one year consisted of approximately ~~$1.5~~$1.9 billion in fixed rate loans and approximately ~~$542~~$775 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~~2020 and December 31, ~~2018~~2019 (in thousands):

	June 30, 2020			December 31, 2019
Nonaccrual loans	$	20,440		$	25,118
Restructured loans which are performing in accordance with revised terms		2,656			2,700
Total nonperforming loans		23,096			27,818
Repossessed assets		2,301			3,720
Total nonperforming loans and repossessed assets	$	25,397		$	31,538
Nonperforming loans to loans, before allowance for loan losses		0.72	%		1.03	%
Nonperforming loans and repossessed assets to loans, before allowance for loan losses		0.79	%		1.17	%

June 30,
2019 December 31,
2018
Nonaccrual loans $ 22,994
$ 27,298
Restructured loans which are performing in accordance with revised terms 2,779
2,451
Total nonperforming loans 25,773
29,749
Repossessed assets 3,607
2,595
Total nonperforming loans and repossessed assets $ 29,380
$ 32,344
Nonperforming loans to loans, before allowance for loan losses 1.01 % 1.12 %
Nonperforming loans and repossessed assets to loans, before allowance for loan losses 1.15 % 1.22 %

The ~~$4,304,000~~$4,678,000 decrease in nonaccrual loans during ~~2019~~2020 resulted from the net of ~~$6,972,000~~$3,878,000 of loans put on nonaccrual status offset by ~~$9,093,000~~$6,294,000 of loans becoming current or paid-off, ~~$1,629,000~~$205,000 of loans transferred to other real estate and ~~$554,000~~$2,059,000 of loans charged off.

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

	June 30, 2020					December 31, 2019
	Balance		% of Total			Balance		% of Total
Construction and land development	$	38		0.2	%	$	41		0.2	%
Agricultural real estate		369		1.8	%		479		1.9	%
1-4 Family residential properties		7,299		35.7	%		7,379		29.3	%
Multifamily Residential properties		2,243		11.0	%		3,137		12.5	%
Commercial real estate		4,412		21.6	%		4,351		17.3	%
Loans secured by real estate		14,361		70.3	%		15,387		61.2	%
Agricultural loans		837		4.1	%		769		3.1	%
Commercial and industrial loans		4,823		23.6	%		8,441		33.6	%
Consumer loans		419		2.0	%		521		2.1	%
Total loans	$	20,440		100.0	%	$	25,118		100.0	%

June 30, 2019 December 31, 2018
Balance % of Total Balance % of Total
Construction and land development $ 46
0.2 % $ 377
1.4 %
Agricultural real estate 291
1.3 % 309
1.1 %
1-4 Family residential properties 7,150
31.1 % 5,762
21.1 %
Multifamily Residential properties 1,574
6.8 % 2,105
7.7 %
Commercial real estate 5,876
25.6 % 8,457
31.1 %
Loans secured by real estate 14,937
65.0 % 17,010
62.4 %
Agricultural loans 778
3.4 % 667
2.4 %
Commercial and industrial loans 6,584
28.6 % 8,990
32.9 %
Consumer loans 695
3.0 % 625
2.3 %
All Other Loans —
— % 6
— %
Total loans $ 22,994
100.0 % $ 27,298
100.0 %

Interest income that would have been reported if nonaccrual and restructured loans had been performing totaled ~~$1,335,000~~$1,044,000 and ~~$758,000~~$1,335,000 for the ~~six~~three months endedJune 30, 2020 and 2019, ~~and 2018~~, respectively.

The ~~$1,012,000 increase~~$1,419,000 decrease in repossessed assets during the first six months of ~~2019~~2020 resulted from ~~$1,751,000~~$222,000 of additional assets repossessed ~~$14,000 of write downs on assets held,~~ and ~~$725,000~~$1,641,000 of repossessed assets sold. The following table summarizes the composition of repossessed assets (in thousands):

	June 30, 2020					December 31, 2019
	Balance		% of Total			Balance		% of Total
Construction and land development	$	1,444		62.7	%	$	1,826		49.1	%
1-4 family residential properties		—		0.0	%		1,024		27.6	%
Multi-family residential properties		82		3.6	%		64		1.7	%
Commercial real estate		730		31.7	%		730		19.6	%
Total real estate		2,256		98.0	%		3,644		98.0	%
Commercial & industrial loans		—	—%				76		2.0	%
Consumer loans		45		2.0	%		—	—%
Total repossessed collateral	$	2,301		100.0	%	$	3,720		100.0	%

June 30, 2019 December 31, 2018
Balance % of Total Balance % of Total
Construction and land development $ 1,513
41.9 % $ 1,513
58.2 %
1-4 family residential properties 174
4.8 % 583
22.5 %
Commercial real estate 1,882
52.2 % 438
16.9 %
Total real estate 3,569
98.9 % 2,534
97.6 %
Commercial & industrial loans —
— % 61
2.4 %
Consumer loans 38
1.1 % —
— %
Total repossessed collateral $ 3,607
100.0 % $ 2,595
100.0 %

Repossessed assets sold during the first six months of 2020 resulted in net gains of $157,000, of which $174,000 of net gains was related to real estate asset sales and $17,000 of net losses was related to other repossessed assets. Repossessed assets sold during the same period in 2019 resulted in net losses of $63,000, of which $77,000 of net losses was related to real estate asset sales and $14,000 of net gains was related to other repossessed assets. Repossessed assets sold during the same period in 2018 resulted in net losses of $11,000, of which $23,000 of net losses was related to real estate asset sales and $12,000 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,~~2020, the Company’s loan portfolio included ~~$348.6~~$400.8 million of loans to borrowers whose businesses are directly related to agriculture. Of this amount, ~~$264.1~~$330.5 million was concentrated in other grain farming. Total loans to borrowers whose businesses are directly related to agriculture ~~decreased $19.9~~increased $24.4 million from ~~$368.5~~$376.4 million at December 31, ~~2018~~2019 while loans concentrated in other grain farming ~~decreased $12.0~~increased $29.0 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~~$126.5 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~~$401.5 million of loans to lessors of non-residential buildings, ~~$288.4~~$293.7 million of loans to lessors of residential buildings and dwellings, and ~~$90.1~~$124.9 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~~Most 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, ~~2019~~2020 and ~~2018,~~2019, and of changes in the allowance for the three and six ~~month periods~~months ended June 30, ~~2019~~2020 and ~~2018,~~2019, is as follows (dollars in thousands):

	Three months ended June 30,						Six months ended June 30,
	2020			2019			2020			2019
Average loans outstanding, net of unearned income	$	2,703,051		$	2,563,960		$	2,703,051		$	2,593,226
Allowance-prior year end of period		32,876			26,704			26,911			26,189
Adjustment for adoption of ASU 2013-16		—			—			1,672			—
Allowance - beginning of period		32,876			26,704			28,583			26,189
Charge-offs:
1-4 Family residential		69			67			265			197
Commercial Real Estate		467			105			551			161
Agricultural		—			—			—			9
Commercial & Industrial		311			155			1,283			259
Consumer		116			215			287			484
Total charge-offs		963			542			2,386			1,110
Recoveries:
1-4 Family Residential		140			7			202			15
Commercial Real Estate		—			1			5			1
Commercial & Industrial		92			13			115			41
Consumer		100			85			245			185
Total recoveries		332			106			567			242
Net charge-offs (recoveries)		631			436			1,819			868
Provision for loan losses		6,136			91			11,617			1,038
Allowance-end of period	$	38,381		$	26,359		$	38,381		$	26,359
Ratio of annualized net charge-offs to average loans		0.09	%		0.07	%		0.13	%		0.07	%
Ratio of allowance for credit losses to loans outstanding (at amortized cost)		1.20	%		1.04	%		1.20	%		1.04	%
Ratio of allowance for credit losses to nonperforming loans		166	%		102	%		166	%		102	%

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 %

The ratio of allowance for ~~loan~~credit losses to loans outstanding was 1.20% as of June 30, 2020 compared to 1.04% as of June 30, ~~2019 compared~~2019. Excluding the fully guaranteed PPP loans, the ratio of allowance for credit losses to ~~0.93%~~loans outstanding was 1.30% as of June 30, ~~2018.~~2020. The ratio of the allowance for ~~loan~~credit losses to nonperforming loans is 166% as of June 30, 2020 compared to 102% as of June 30, ~~2019 compared to 89% as of June 30, 2018.~~2019. The increase in this ratio is primarily due to ~~a greater~~the increase in the allowance for ~~loan~~credit losses ~~than the increase~~and a decline in ~~non-performing~~nonperforming loans at June 30, ~~2019~~2020 compared to June 30, ~~2018.~~

2019. The increase in allowance for credit losses 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 six months of ~~2019,~~2020, the Company had net charge-offs of ~~$868,000~~$1,819,000 compared to net charge-offs of ~~$864,000~~$868,000 in ~~2018.~~2019. During the first six months of 2020, there were significant charge-offs of four commercial real estate loans to three borrowers totaling $482,000 and four commercial loans to a single borrower totaling $1.1 million. 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 months endedJune 30, ~~2019~~2020 and ~~2018~~2019 and for the year ended December 31, ~~2018~~2019 (dollars in thousands):

	Six months ended June 30, 2020					Six months ended June 30, 2019					Year ended December 31, 2019
	Average Balance		Weighted Average Rate			Average Balance		Weighted Average Rate			Average Balance		Weighted Average Rate
Demand deposits:
Non-interest-bearing	$	713,960	—%			$	605,735	—%			$	608,106	—%
Interest-bearing		1,364,331		0.26	%		1,309,927		0.50	%		1,303,814		0.50	%
Savings		450,381		0.10	%		439,694		0.14	%		437,549		0.13	%
Time deposits		555,773		1.79	%		639,656		1.81	%		630,369		1.88	%
Total average deposits	$	3,084,445		0.45	%	$	2,995,012		0.63	%	$	2,979,838		0.64	%

Six months ended June 30, 2019 Six months ended June 30, 2018 Year ended December 31, 2018
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
— %
Interest-bearing 1,309,927
0.50 % 1,116,810
0.20 % 1,194,089
0.28 %
Savings 439,694
0.14 % 381,356
0.15 % 395,028
0.15 %
Time deposits 639,656
1.81 % 400,679
0.71 % 473,043
0.99 %
Total average deposits $ 2,995,012
0.63 % $ 2,385,775
0.25 % $ 2,569,033
0.33 %

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

Six months ended

June 30, 2020

Six months ended

June 30, 2019

Year ended

December 31, 2019

High month-end balances of total deposits

3,385,827

3,046,212

Low month-end balances of total deposits

2,873,260

2,961,660

2,917,366

Six months ended June 30, 2019 Six months ended June 30, 2018 Year ended
December 31, 2018
High month-end balances of total deposits $ 3,046,212
$ 2,670,864
$ 3,017,035
Low month-end balances of total deposits 2,961,660
2,208,941
2,208,941

During the first six months of ~~2019,~~2020, the average balance of deposits increased by ~~$426.0~~$104.6 million from the average balance for the year ended December 31, ~~2018~~.2019. Average ~~non-interest bearing~~non-interest-bearing deposits increased by ~~$98.9~~$105.9 million, average ~~interest-bearing~~interest- bearing balances increased by ~~$115.8~~$60.5 million, savings account balances increased ~~$44.7~~$12.8 million and balances of time deposits ~~increased $166.6~~decreased $74.6 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~~2020 and December 31, ~~2018~~2019 (inthousands):

	June 30, 2020		December 31, 2019
3 months or less	$	64,410	$	81,910
Over 3 through 6 months		50,051		55,495
Over 6 through 12 months		106,808		95,725
Over 12 months		95,211		107,861
Total	$	316,480	$	340,991

June 30, 2019 December 31, 2018
3 months or less $ 55,851
$ 44,898
Over 3 through 6 months 51,913
49,476
Over 6 through 12 months 121,117
78,567
Over 12 months 161,134
155,071
Total $ 390,015
$ 328,012

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~~2020 and December 31, ~~2018~~2019 is presented below (dollars in thousands):

	June 30, 2020			December 31, 2019
Securities sold under agreements to repurchase	$	350,288		$	208,109
Federal Home Loan Bank advances:
Fixed term – due in one year or less		23,939			39,000
Fixed term – due after one year		80,000			74,895
Other borrowings
Fed funds		—			5,000
Junior subordinated debentures		18,942			18,858
Total	$	473,169		$	345,862
Average interest rate at end of period		0.61	%		1.08	%
Maximum outstanding at any month-end:
Securities sold under agreements to repurchase	$	350,288		$	208,109
Federal Home Loan Bank advances:
FHLB-Overnight		—			25,000
Fixed term – due in one year or less		59,904			66,000
Fixed term – due after one year		80,000			74,895
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
Junior subordinated debentures		18,942			29,126
Averages for the period (YTD):
Securities sold under agreements to repurchase	$	252,252		$	169,437
Federal Home Loan Bank advances:
FHLB-overnight		3,681			7,148
Fixed term – due in one year or less		29,894			63,151
Fixed term – due after one year		83,681			39,331
Other borrowings
Federal funds purchased		1,055			616
Loans due in one year or less		1,319			—
Loans due after one year		—			1,825
Junior subordinated debentures		18,894			26,649
Total	$	390,776		$	308,157
Average interest rate during the period		0.95	%		1.66	%

June 30, 2019 December 31, 2018
Securities sold under agreements to repurchase $ 152,264
$ 192,330
Federal Home Loan Bank advances:

Fixed term – due in one year or less 60,887
29,000
Fixed term – due after one year 34,939
90,745
Debt:

     Debt due after one year —
7,724
Junior subordinated debentures 29,084
29,000
Total $ 277,174
$ 348,799
Average interest rate at end of period 1.73 % 1.30 %
Maximum outstanding at any month-end:
Securities sold under agreements to repurchase $ 191,557
$ 192,330
Federal funds purchased —
22,000
Federal Home Loan Bank advances:

FHLB-Overnight —
30,000
Fixed term – due in one year or less 65,873
29,000
Fixed term – due after one year 54,932
101,745
Debt:

     Debt due after one year 6,549
10,313
Junior subordinated debentures 29,084
30,221
Averages for the period (YTD):

Securities sold under agreements to repurchase $ 168,090
$ 140,622
Federal funds purchased 58
3,794
Federal Home Loan Bank advances:

FHLB-overnight —
9,434
Fixed term – due in one year or less 47,928
16,510
Fixed term – due after one year 65,942
71,757
Debt:

Loans due in one year or less —
548
     Loans due after one year 3,680
9,555
Junior subordinated debentures 29,035
27,391
Total $ 314,733
$ 279,611
Average interest rate during the period 1.74 % 1.52 %

Securities sold under agreements to repurchase ~~decreased $40.1~~increase $142.2 million during the first six 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~~2020 the fixed term advances consisted of ~~$96~~$104 million as follows:

Advance		Term (in years)		Interest Rate	Maturity Date
$	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
	4,000,000		1.0	2.00%	May 3, 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

~~$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~~