

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

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, ~~2016~~2017
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________

Commission file number 0-13368

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

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

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

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

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

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

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



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

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

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

As of August ~~5, 2016~~4, 2017, ~~9,843,652~~12,513,872 common shares, $4.00 par value, were outstanding.

PART I


ITEM 1. FINANCIAL STATEMENTS
First Mid-Illinois Bancshares, Inc.
Condensed Consolidated Balance Sheets	(Unaudited)						(Unaudited)
(In thousands, except share data)	June 30, 2016			December 31, 2015			June 30, 2017			December 31, 2016
Assets
Cash and due from banks:
Non-interest bearing	$	47,137		$	42,570		$	53,124		$	57,988
Interest bearing	5,444			72,722			20,274			79,014
Federal funds sold	491			492			491			38,900
Cash and cash equivalents	53,072			115,784			73,889			175,902
Certificates of deposit investments	30,307			25,000			1,685			14,643
Investment securities:
Available-for-sale, at fair value	500,577			518,848			682,140			619,848
Held-to-maturity, at amortized cost (estimated fair value of $113,112 and $85,737 at June 30, 2016 and December 31, 2015, respectively)	112,161			85,208
Held-to-maturity, at amortized cost (estimated fair value of $74,224 and $73,096 at June 30, 2017 and December 31, 2016, respectively)							74,281			74,231
Loans held for sale	1,346			968			1,932			1,175
Loans	1,313,841			1,280,921			1,823,702			1,824,817
Less allowance for loan losses	(15,164		)	(14,576		)	(18,209		)	(16,753		)
Net loans	1,298,677			1,266,345			1,805,493			1,808,064
Interest receivable	7,299			8,085			9,620			10,553
Other real estate owned	436			477			2,689			1,982
Premises and equipment, net	29,569			31,340			39,076			40,292
Goodwill, net	41,007			41,007			57,791			57,791
Intangible assets, net	8,140			8,997			11,726			12,832
Bank owned life insurance	25,183			—			41,881			41,318
Other assets	12,009			12,440			23,101			25,904
Total assets	$	2,119,783		$	2,114,499		$	2,825,304		$	2,884,535
Liabilities and Stockholders’ Equity
Deposits:
Non-interest bearing	$	340,576		$	342,636		$	425,344		$	471,206
Interest bearing	1,363,623			1,389,932			1,864,062			1,858,681
Total deposits	1,704,199			1,732,568			2,289,406			2,329,887
Securities sold under agreements to repurchase	131,099			128,842			142,411			185,763
Interest payable	385			356			502			535
FHLB borrowings	40,000			20,000			45,066			40,094
Other borrowings							12,188			18,063
Junior subordinated debentures	20,620			20,620			23,959			23,917
Dividends payable	—			550
Other liabilities	6,860			6,554			10,881			5,603
Total liabilities	1,903,163			1,909,490			2,524,413			2,603,862
Stockholders’ Equity:
Convertible preferred stock, no par value; authorized 1,000,000 shares; issued 0 shares in 2016 and 5,500 shares in 2015	—			27,400
Common stock, $4 par value; authorized 18,000,000 shares; issued 10,393,395 and 9,003,710 shares in 2016 and 2015, respectively	43,574			38,015
Common stock, $4 par value; authorized 18,000,000 shares; issued 13,055,615 and 13,020,742 shares in 2017 and 2016, respectively							54,222			54,083
Additional paid-in capital	102,786			79,626			160,123			158,671
Retained earnings	77,679			71,712			96,686			86,216
Deferred compensation	2,907			3,245			2,736			3,201
Accumulated other comprehensive income	5,262			723
Less treasury stock at cost, 549,743 shares in 2016 and 2015	(15,588		)	(15,712		)
Accumulated other comprehensive income (loss)							2,649			(5,761		)
Less treasury stock at cost, 549,743 shares in 2017 and 2016							(15,525		)	(15,737		)
Total stockholders’ equity	216,620			205,009			300,891			280,673
Total liabilities and stockholders’ equity	$	2,119,783		$	2,114,499		$	2,825,304		$	2,884,535

See accompanying notes to unaudited condensed consolidated financial statements.



First Mid-Illinois Bancshares, Inc.
Condensed Consolidated Statements of Income (unaudited)
(In thousands, except per share data)	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
Interest income:
Interest and fees on loans	$	21,025	$	13,610	$	40,952	$	27,202
Interest on investment securities	4,366		3,172		8,406		6,393
Interest on certificates of deposit investments	7		83		32		156
Interest on federal funds sold	—		1		61		1
Interest on deposits with other financial institutions	48		17		177		110
Total interest income	25,446		16,883		49,628		33,862
Interest expense:
Interest on deposits	933		575		1,812		1,154
Interest on securities sold under agreements to repurchase	46		21		86		39
Interest on FHLB borrowings	168		165		319		315
Interest on other borrowings	119		3		242		3
Interest on subordinated debentures	227		149		444		294
Total interest expense	1,493		913		2,903		1,805
Net interest income	23,953		15,970		46,725		32,057
Provision for loan losses	1,840		733		3,562		846
Net interest income after provision for loan losses	22,113		15,237		43,163		31,211
Other income:
Trust revenues	841		794		1,771		1,775
Brokerage commissions	509		466		1,014		914
Insurance commissions	853		735		2,478		2,068
Service charges	1,690		1,644		3,402		3,153
Securities gains, net	335		404		335		664
Mortgage banking revenue, net	335		238		528		333
ATM / debit card revenue	1,665		1,472		3,233		2,961
Bank owned life insurance	282		174		563		183
Other	1,459		532		2,141		1,052
Total other income	7,969		6,459		15,465		13,103
Other expense:
Salaries and employee benefits	10,102		7,602		20,037		15,449
Net occupancy and equipment expense	3,116		2,646		6,249		5,525
Net other real estate owned (income) expense	127		10		145		(9		)
FDIC insurance	290		281		469		547
Amortization of intangible assets	559		402		1,106		857
Stationery and supplies	186		190		371		391
Legal and professional	894		917		1,725		1,701
Marketing and donations	277		239		571		1,201
Other	2,404		1,856		6,484		3,652
Total other expense	17,955		14,143		37,157		29,314
Income before income taxes	12,127		7,553		21,471		15,000
Income taxes	3,927		2,624		7,007		5,265
Net income	8,200		4,929		14,464		9,735
Dividends on preferred shares	—		275		—		825
Net income available to common stockholders	$	8,200	$	4,654	$	14,464	$	8,910
Per share data:
Basic net income per common share available to common stockholders	$	0.66	$	0.51	$	1.16	$	1.01
Diluted net income per common share available to common stockholders	$	0.66	$	0.50	$	1.16	$	0.99
Cash dividends declared per common share	$	0.32	$	0.30	$	0.32	$	0.30

See accompanying notes to unaudited condensed consolidated financial statements.

First Mid-Illinois Bancshares, Inc.
Condensed Consolidated Statements of Income (unaudited)
(In thousands, except per share data) Three months ended June 30, Six months ended June 30,
2016 2015 2016 2015
Interest income:
Interest and fees on loans $ 13,610
$ 11,724
$ 27,202
$ 22,776
Interest on investment securities 3,172
2,430
6,393
4,791
Interest on certificates of deposit investments 83
—
156
—
Interest on federal funds sold 1
—
1
—
Interest on deposits with other financial institutions 17
18
110
44
Total interest income 16,883
14,172
33,862
27,611
Interest expense:

Interest on deposits 575
513
1,154
1,045
Interest on securities sold under agreements to repurchase 21
15
39
29
Interest on FHLB borrowings 165
157
315
310
Interest on other borrowings 3
13
3
13
Interest on subordinated debentures 149
130
294
258
Total interest expense 913
828
1,805
1,655
Net interest income 15,970
13,344
32,057
25,956
Provision for loan losses 733
143
846
408
Net interest income after provision for loan losses 15,237
13,201
31,211
25,548
Other income:

Trust revenues 794
860
1,775
1,780
Brokerage commissions 466
306
914
584
Insurance commissions 735
474
2,068
1,109
Service charges 1,644
1,278
3,153
2,467
Securities gains, net 404
1
664
230
Mortgage banking revenue, net 238
210
333
377
ATM / debit card revenue 1,472
1,018
2,961
2,024
Bank owned life insurance 174
—
183
—
Other 532
390
1,052
765
Total other income 6,459
4,537
13,103
9,336
Other expense:

Salaries and employee benefits 7,602
6,297
15,449
12,353
Net occupancy and equipment expense 2,646
1,926
5,525
3,905
Net other real estate owned (income) expense 10
9
(9 ) 1
FDIC insurance 281
202
547
405
Amortization of intangible assets 402
156
857
311
Stationery and supplies 190
143
391
295
Legal and professional 917
600
1,701
1,182
Marketing and donations 239
277
1,201
494
Other 1,856
1,620
3,652
3,088
Total other expense 14,143
11,230
29,314
22,034
Income before income taxes 7,553
6,508
15,000
12,850
Income taxes 2,624
2,352
5,265
4,655
Net income 4,929
4,156
9,735
8,195
Dividends on preferred shares 275
550
825
1,100
Net income available to common stockholders $ 4,654
$ 3,606
$ 8,910
$ 7,095

Per share data:

Basic net income per common share available to common stockholders $ 0.51
$ 0.50
$ 1.01
$ 1.00
Diluted net income per common share available to common stockholders $ 0.50
$ 0.49
$ 0.99
$ 0.97
Cash dividends declared per common share $ 0.30
$ 0.29
$ 0.30
$ 0.29

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


First Mid-Illinois Bancshares, Inc.
Condensed Consolidated Statements of Comprehensive Income (unaudited)	Condensed Consolidated Statements of Comprehensive Income (unaudited)												Condensed Consolidated Statements of Comprehensive Income (unaudited)
(in thousands)	Three months ended June 30,						Six months ended June 30,						Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015			2017			2016			2017			2016
Net income	$	4,929		$	4,156		$	9,735		$	8,195		$	8,200		$	4,929		$	14,464		$	9,735
Other Comprehensive Income
Unrealized gains (losses) on available-for-sale securities, net of taxes of $(1,345) and $1,919 for three months ended June 30, 2016 and 2015, respectively and $(3,009) and $47 for six months ended June 30, 2016 and 2015, respectively.	2,103			(3,001		)	4,709			(75		)
Amortized holding losses on held-to-maturity securities transferred from available-for-sale, net of taxes of $(81) and $(68) for three months ended June 30, 2016 and 2015, respectively and $(150) and $(125) for six months ended June 30, 2016 and 2015, respectively.	128			106			235			196
Less: reclassification adjustment for realized gains included in net income net of taxes of $157 and $0 for three months ended June 30, 2016 and 2015, respectively and $259 and $90 for six months ended June 30, 2016 and 2015, respectively.	(247		)	(1		)	(405		)	(140		)
Other comprehensive income (loss), net of taxes	1,984			(2,896		)	4,539			(19		)
Unrealized gains on available-for-sale securities, net of taxes of $(3,444) and $(1,345) for three months ended June 30, 2017 and 2016, respectively and $(5,481) and $(3,009) for six months ended June 30, 2017 and 2016, respectively.													5,391			2,103			8,580			4,709
Amortized holding losses on held-to-maturity securities transferred from available-for-sale, net of taxes of $(11) and $(81) for three months ended June 30, 2017 and 2016, respectively and $(22) and $(150) for six months ended June 30, 2017 and 2016, respectively.													17			128			34			235
Less: reclassification adjustment for realized gains included in net income, net of taxes of $131 and $157 for three months ended June 30, 2017 and 2016, respectively and $131 and $259 for six months ended June 30, 2017 and 2016, respectively.													(204		)	(247		)	(204		)	(405		)
Other comprehensive income, net of taxes													5,204			1,984			8,410			4,539
Comprehensive income	$	6,913		$	1,260		$	14,274		$	8,176		$	13,404		$	6,913		$	22,874		$	14,274

See accompanying notes to unaudited condensed consolidated financial statements.


First Mid-Illinois Bancshares, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)	Six months ended June 30,						Six months ended June 30,
(In thousands)	2016			2015			2017			2016
Cash flows from operating activities:
Net income	$	9,735		$	8,195		$	14,464		$	9,735
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	846			408			3,562			846
Depreciation, amortization and accretion, net	3,566			1,820			4,124			3,566
Change in cash surrender value of bank owned life insurance	(183		)	—			(563		)	(183		)
Stock-based compensation expense	178			175			129			178
Gains on investment securities, net	(664		)	(230		)	(335		)	(664		)
Gain on sales of other real property owned, net	(22		)	(18		)
(Gain) Loss on sales of other real property owned, net							30			(22		)
Donation of building	653			—			—			653
Loss on write down of fixed assets	24			78			1			24
Gains on sale of loans held for sale, net	(382		)	(397		)	(507		)	(382		)
Decrease in accrued interest receivable	786			784			933			786
Increase in accrued interest payable	29			17
(Decrease) increase in accrued interest payable							(19		)	29
Origination of loans held for sale	(29,111		)	(29,612		)	(32,256		)	(29,111		)
Proceeds from sale of loans held for sale	29,115			29,391			32,006			29,115
Increase in other assets	(2,329		)	(2,768		)	(2,353		)	(2,329		)
(Decrease) increase in other liabilities	271			(761		)
Increase in other liabilities							5,269			271
Net cash provided by operating activities	12,512			7,082			24,485			12,512
Cash flows from investing activities:
Proceeds from maturities of certificates of deposit investments	7,651			—			12,958			7,651
Purchases of certificates of deposit investments	(12,958		)	—			—			(12,958		)
Proceeds from sales of securities available-for-sale	38,241			9,453			28,140			38,241
Proceeds from maturities of securities available-for-sale	50,952			33,854			31,105			50,952
Proceeds from maturities of securities held-to-maturity	29,993			10,000			—			29,993
Purchases of securities available-for-sale	(64,681		)	(88,002		)	(109,166		)	(64,681		)
Purchases of securities held-to-maturity	(56,565		)	—			—			(56,565		)
Net (increase) decrease in loans	(33,294		)	3,672
Net increase in loans							(6,162		)	(33,294		)
Sale of premises and equipment	147			—			—			147
Purchases of premises and equipment	(280		)	(860		)	(741		)	(280		)
Proceeds from sales of other real property owned	179			80			5,068			179
Investment in bank owned life insurance	(25,000		)	—			—			(25,000		)
Net cash used in investing activities	(65,615		)	(31,803		)	(38,798		)	(65,615		)
Cash flows from financing activities:
Net decrease in deposits	(28,369		)	(5,878		)	(40,481		)	(28,369		)
Increase (decrease) in repurchase agreements	2,257			(4,401		)	(43,352		)	2,257
Proceeds from FHLB advances	20,000			5,000			10,000			20,000
Proceeds from other borrowings	—			2,000
Repayment of FHLB advances							(5,000		)	—
Repayment of other borrowings	—			(2,000		)	(5,875		)	—
Proceeds from issuance of common stock	47			28,099			475			47
Purchase of treasury stock	—			(962		)
Dividends paid on preferred stock	(1,286		)	(1,001		)	—			(1,286		)
Dividends paid on common stock	(2,258		)	(1,532		)	(3,467		)	(2,258		)
Net cash provided by (used in) financing activities	(9,609		)	19,325
Net cash used in financing activities							(87,700		)	(9,609		)
Decrease in cash and cash equivalents	(62,712		)	(5,396		)	(102,013		)	(62,712		)
Cash and cash equivalents at beginning of period	115,784			51,730			175,902			115,784
Cash and cash equivalents at end of period	$	53,072		$	46,334		$	73,889		$	53,072


First Mid-Illinois Bancshares, Inc.
	Six months ended June 30,
Condensed Consolidated Statements of Cash Flows (unaudited)					Six months ended June 30,
(In thousands)	2016		2015		2017		2016

Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	1,776	$	1,638	$	2,936	$	1,776
Income taxes	6,835		4,911		4,198		6,835
Supplemental disclosures of noncash investing and financing activities
Loans transferred to other real estate owned	116		90		5,171		116
Dividends reinvested in common stock	774		597		527		774
Net tax benefit related to option and deferred compensation plans	140		85		216		140

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-Illinois Bancshares, Inc. (“Company”) and its wholly-owned subsidiaries: First Mid-Illinois Bank & Trust, N.A. (“First Mid Bank”), Mid-Illinois Data Services, Inc. (“MIDS”) and The Checkley Agency, Inc. doing business as First Mid Insurance Group (“First Mid Insurance”). 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, ~~2016~~2017 and ~~2015~~2016, and all such adjustments are of a normal recurring nature. Certain amounts in the prior year’s consolidated financial statements have been reclassified to conform to the June 30, ~~2016~~2017 presentation and there was no impact on net income or stockholders’ equity. The results of the interim period ended June 30, ~~2016~~2017 are not necessarily indicative of the results expected for the year ending December 31, ~~2016~~2017. The Company operates as a one-segment entity for financial reporting purposes.

The ~~2015~~2016 year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

The unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and do not include all of the information required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements and related footnote disclosures although the Company believes that the disclosures made are adequate to make the information not misleading. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s ~~2015~~2016 Annual Report on Form 10-K.

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.

~~Branch Purchase and Assumption Agreement~~

On January 30, 2015, First Mid Bank, a wholly-owned subsidiary of the Company, entered into a Purchase and Assumption Agreement (the “Purchase Agreement”) with Old National Bank, a national banking association having its principal office in Evansville, Indiana, pursuant to which First Mid Bank purchased certain assets and assume certain liabilities of 12 branch offices of Old National Bank in Southern Illinois (the “ONB Branches”). Pursuant to the terms of the Purchase Agreement, First Mid Bank agreed to assume certain deposit liabilities and to acquire certain loans, as well as cash, real property, furniture, and other fixed operating assets associated with the ONB Branches. The book value of loan and deposit balances assumed was approximately $156 million and $453 million, respectively. First Mid Bank also agreed to assume certain leases, and entered into certain subleases, relating to the ONB Branches. The completion of the Purchase was subject to regulatory approval required by the Office of the Comptroller of the Currency and normal customary closing conditions, including First Mid Bank, in conjunction with the Company, obtaining financing in connection with the acquisition. Following satisfaction of these conditions, First Mid Bank and Old National Bank closed the acquisition on August 14, 2015.

~~Capital Raise~~

On June 18, 2015, the Company entered into a securities purchase agreement with a limited number of institutional investors to sell, and accepted from certain other accredited investors, including certain directors of the Company, subscriptions for, an aggregate total of 1,392,859 newly issued shares of the Company's common stock at a purchase price of $21.00 per share, for an aggregate gross purchase price of approximately $29,250,039 (the "Offering"). The Offering closed on June 19, 2015. The Company used the net proceeds of the Offering to provide capital support for the purchase of the ONB Branches and for general corporate purposes.

~~Acquisition of Illiana~~

~~On December 1, 2015, First Mid Insurance Group, a wholly-owned subsidiary of the Company, acquired substantially all of the assets of Illiana, a health plan and life insurance and annuities business.~~

Agreement and Plan of Merger

On April 26, 2016, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with First Clover Leaf Financial Corp., a Maryland corporation ("First Clover Leaf"), pursuant to which, amongst other things, the Company agreed to acquire 100% of the issued and outstanding shares of First Clover Leaf pursuant to a business combination whereby First Clover Leaf would merge with and into the Company, with the Company as the surviving entity (the "Merger"). ~~Subject to the terms and conditions of the Merger Agreement, at~~

On September 8, 2016, the effective time of the Merger, ~~each share~~25% of ~~common stock, par value $0.10 per share,~~the shares of First Clover Leaf common stock issued and outstanding immediately prior to the effective time of the Merger ~~will be~~ converted into ~~and become~~ the right to receive at$12.87 per share, for an approximate aggregate total of $22,545,000, and 75% of the ~~election~~shares of ~~each stockholder, either (a) $12.87 or (b)~~First Clover Leaf common stock issued and outstanding immediately prior to the effective time of the Merger converted into the right to receive 0.495 shares of the Company’s common stock, par value $4$4.00 per share, for an approximate aggregate total of 2,600,616 shares of the ~~Company and cash~~Company’s common stock. Cash in lieu of fractional shares ~~subject to certain adjustments, all as set forth~~of Company common stock were issued in connection with the Merger Agreement. The Merger is anticipated to close in the second half of 2016. On July 15, 2016, the Company received approval of the Merger from the Board of Governors of the Federal Reserve System. Subject to the satisfaction of customary closing conditions in the Merger Agreement and the approval of the stockholders of both the Company and First Clover Leaf, the Merger is anticipated to be completed in the second half of 2016.Merger.

~~Series C Convertible~~ Preferred Stock

During 2011, the Company accepted from certain accredited investors, including directors, executive officers, and certain major customers and holders of the Company’s common stock (collectively, the “Investors”), subscriptions for the purchase of $27,500,000, in the aggregate, of a newly authorized series of preferred stock designated as Series C 8% Non-Cumulative Perpetual Convertible Preferred Stock (the “Series C Preferred Stock”). The Series C Preferred Stock had an issue price of $5,000 per share and no par value per share. The Series C Preferred Stock was issued in a private placement exempt from registration pursuant to Regulation D of the Securities Act of 1933, as amended.

On May 16, 2016, the Company completed the mandatory conversion of the Series C Preferred Stock. The conversion ratio for each share of the Series C Preferred Stock was computed by dividing $5,000 (the issuance price per share of the Series C Preferred Stock) by $20.29 ~~(then current~~(the conversion price). The conversion ratio, therefore, was 246.427 shares of the Company's common stock for each share of Series C Preferred Stock. This resulted in the issuance of approximately 1,355,319 shares of common stock in the aggregate. As a result of the conversion, dividends ceased to accrue on the Series C Preferred Stock and certificates for shares of Series C Preferred Stock only represent the right to receive the appropriate number of shares of common stock, together with net accrued but unpaid dividends on the Series C Preferred Stock, and cash in lieu of fractional share interests.

~~Rights Agreement~~

On January 21, 2015, the Company entered into an Amendment No. 1 to the Rights Agreement (the "Rights Agreement"), dated as of September 22, 2009, by and between the Company and Computershare Trust Company, N.A., as rights agent. This amendment accelerated the expiration of the Company's common stock purchase rights (the “Rights”) from 5:00 p.m., Mattoon, Illinois time, on September 22, 2019, to 5:00 p.m., Mattoon, Illinois time, on January 21, 2015, and had the effect of terminating the Rights Agreement on that date. At the time of the termination of the Rights Agreement, all of the Rights distributed to holders of the Company's common stock pursuant to the Rights Agreement expired.

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 cash surrender value adjusted for other charges or other amounts that are probable at settlement.

Stock Plans

At the Annual Meeting of Stockholders held ~~May 23, 2007,~~April 26, 2017, the stockholders approved the First Mid-Illinois Bancshares, Inc. ~~2007~~2017 Stock Incentive Plan (“SI Plan”). The SI Plan was implemented to succeed the Company’s ~~1997~~2007 Stock Incentive Plan, which had a ten-year ~~term that expired October 21, 2007.~~term. The SI Plan is intended to provide a means whereby directors, employees, consultants and advisors of the Company and its subsidiaries may sustain a sense of proprietorship and personal involvement in the continued development and financial success of the Company and its subsidiaries, thereby advancing the interests of the Company and its stockholders. Accordingly, directors and selected employees, consultants and advisors may be provided the opportunity to acquire shares of common stock of the Company on the terms and conditions established in the SI Plan.

On September 27, 2011, the Board of Directors passed a resolution relating to the SI Plan whereby they authorized and approved the Executive Long-Term Incentive Plan (“LTIP”). The LTIP was implemented to provide methodology for granting Stock Awards and Stock Unit Awards to select senior executives of the Company or any Subsidiary.

A maximum of ~~300,000~~149,983 shares of common stock may be issued under the SI Plan. ~~As of~~ ~~June 30, 2016, the Company had awarded~~ ~~59,500~~ ~~shares as stock options under the SI plan.~~ There ~~were~~have been no stock options awarded in ~~2016~~ or ~~2015~~.since 2008. The Company awarded ~~12,925~~ ~~shares as Stock Unit Awards~~11,473 and ~~16,604~~ as ~~50%~~ ~~Stock Awards~~13,912 stock units during 2017 and ~~50%~~ ~~Stock Unit Awards during 2015 and 2014,~~2016, respectively, under the ~~SI plan.~~2007 Stock Incentive Plan.

Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) included in stockholders’ equity as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 are as follows (in thousands):


	Unrealized Gain (Loss) on Securities			Securities with Other-Than-Temporary Impairment Losses			Total			Unrealized Gain (Loss) on Securities			Securities with Other-Than-Temporary Impairment Losses			Total
June 30, 2016
June 30, 2017
Net unrealized gains on securities available-for-sale	$	10,421		$	—		$	10,421		$	5,229		$	—		$	5,229
Unamortized losses on held-to-maturity securities transferred from available-for-sale	(449		)	—			(449		)	(338		)	—			(338		)
Securities with other-than-temporary impairment losses	—			(1,348		)	(1,348		)	—			(550		)	(550		)
Tax benefit (expense)	(3,887		)	525			(3,362		)	(1,906		)	214			(1,692		)
Balance at June 30, 2016	$	6,085		$	(823	)	$	5,262
Balance at June 30, 2017										$	2,985		$	(336	)	$	2,649

December 31, 2015
Net unrealized gains on securities available-for-sale $ 3,243
$ —
$ 3,243
Unamortized losses on held-to-maturity securities transferred from available-for-sale (834 ) —
(834 )
Securities with other-than-temporary impairment losses —
(1,224 ) (1,224 )
Tax benefit (expense) (939 ) 477
(462 )
Balance at December 31, 2015 $ 1,470
$ (747 ) $ 723



December 31, 2016
Net unrealized losses on securities available-for-sale	$	(7,649	)	$	—		$	(7,649	)
Unamortized losses on held-to-maturity securities transferred from available-for-sale	(394		)	—			(394		)
Securities with other-than-temporary impairment losses	—			(1,398		)	(1,398		)
Tax benefit	3,135			545			3,680
Balance at December 31, 2016	$	(4,908	)	$	(853	)	$	(5,761	)

Amounts reclassified from accumulated other comprehensive income and the affected line items in the statements of income during the six months ended June 30, ~~2016~~2017 and ~~2015~~2016, were as follows (in thousands):


	Amounts Reclassified from Other Comprehensive Income						Affected Line Item in the Statements of Income	Amounts Reclassified from Other Comprehensive Income												Affected Line Item in the Statements of Income
	2016			2015			Affected Line Item in the Statements of Income	Amounts Reclassified from Other Comprehensive Income
Unrealized gains on available-for-sale securities	$	664		230			Securities gains, net
								Three months ended June 30,						Six months ended June 30,
								2017			2016			2017			2016			Affected Line Item in the Statements of Income
Realized gains on available-for-sale securities								$	335		$	404		$	335		$	664
							(Total reclassified amount before tax)
	(259		)	(90		)	Income taxes	(131		)	(157		)	(131		)	(259		)
Total reclassifications out of accumulated other comprehensive income	$	405		$	140		Net reclassified amount	$	204		$	247		$	204		$	405		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. Early adoption is permitted, including adoption in an interim period. The amendments should be applied on a prospective basis to an award modified on or after adoption date. ASU 2017-09 is not expected to 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 is permitted, including adoption in an interim period. The Company has 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 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 January 1, 2017. 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, does not anticipate a material impact on the Company's consolidated financial statements. The current accounting policies and procedures of the Company are not anticipated to change, except for the elimination of the Step 2 analysis.

Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments (“ASU 2016-13”). In June 2016, FASB issued ASU 2016-13. The provisions of ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate its lifetime "expected credit loss" and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in

more timely recognition of credit losses. ASU 2016-13 also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale 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 ~~is evaluating~~has formed an internal committee to evaluate implementation steps and assess the impact ASU 2016-13 will have on the Company’s consolidated financial statements.

~~Accounting Standards Update 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”).~~ In March 2016, FASB issued ASU 2016-09. The objective of the simplification initiative is to identify, evaluate, and improve areas of US GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The areas for simplification involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. The new guidance will be effective for public companies for reporting periods beginning after December 15, 2016, and is not expected to have a significant impact on the Company’s financial statements.

Accounting Standards Update 2016-08, Revenue from Contracts with Customers (Topic 606) (“ASU 2016-08"). In March 2016, the FASB issued ASU 2016-08 which amended the accounting guidance issued by the FASB in May 2014 that revised the criteria for determining when to recognize revenue from contracts with customers and expanded disclosure requirements. The amendment defers the effective date by one year. This accounting guidance can be implemented using either a retrospective method or a cumulative-effect approach. This new guidance will be effective for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted but only for interim and annual reporting periods beginning after December 15, 2016. There are many aspects of the new accounting guidance that are still being interpreted, and the FASB has recently issued and proposed updates to certain aspects of the guidance. Management ~~is evaluating~~continues to evaluate the impact of ASU 2016-08 will have on the Company’s consolidated financial statements.

Accounting 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 will be 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 will be 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. Early adoption is permitted for all entities. Management ~~is evaluating~~continues to evaluate the impact ASU 2016-02 will have on the Company's consolidated financial statements.

Accounting Standards Update 2016-01, Financial Instruments (Topic 825): Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). In January 2016, FASB issued ASU 2016-01 which amends prior guidance to require an entity to measure its equity investments (except those accounted for under the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income. An entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of same issuer. The new guidance simplifies the impairment assessment of equity investments without readily determinable fair values, requires public entities to use the exit price notion when measuring fair value of financial instruments for disclosure purposes, requires an entity to present separately in other comprehensive income the portion of the total change in fair value of a liability resulting from changes in the instrument-specific credit risk when the entity has selected fair value option for financial instruments and requires separate presentation of financial assets and liabilities by measurement category and form of financial asset. The new guidance will be effective for reporting periods after January 1, 2018 and is not expected to have a significant impact on the Company's consolidated financial statements.

Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606): ("ASU 2014-09"). In May 2014, FASB issued ASU 2014-09 which created a new topic in the FASB Accounting Standards Codification(R) ("ASC"), Topic 606. In addition to superseding and replacing nearly all existing U.S. GAAP revenue recognition guidance, including industry-specific guidance, ASU 2014-09 establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue. In addition, ASU 2014-09 adds a new Subtopic to the ASC, ~~OtherAssets~~Other Assets and Deferred Costs: Contracts with Customers ("ASC 340-40"), to provide guidance on costs related to obtaining a contract with a customer and costs incurred in fulfilling a contract with a customer that are not in the scope of another ASC Topic. The new guidance does not apply to certain contracts within the scope of other ASC Topics, such as lease contracts, insurance contracts, financing arrangements, financial instruments, guarantee other than product or service warranties, and non-monetary exchanges between entities in the same line of business to facilitate sales to customers. See ASU 2016-08 for the effective dates.

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 assumed conversion of the Company’s convertible preferred stock and the Company’s stock options, unless anti-dilutive.

The components of basic and diluted net income per common share available to common stockholders for the three and six-month period ended June 30, ~~2016~~2017 and ~~2015~~2016 were as follows:


	Three months ended June 30,						Six months ended June 30,						Three months ended June 30,					Six months ended June 30,
	2016			2015			2016			2015			2017		2016			2017		2016
Basic Net Income per Common Share
Available to Common Stockholders:
Net income	$	4,929,000		$	4,156,000		$	9,735,000		$	8,195,000		$	8,200,000	$	4,929,000		$	14,464,000	$	9,735,000
Preferred stock dividends	(275,000		)	(550,000		)	(825,000		)	(1,100,000		)	—		(275,000		)	—		(825,000		)
Net income available to common stockholders	$	4,654,000		$	3,606,000		$	8,910,000		$	7,095,000		$	8,200,000	$	4,654,000		$	14,464,000	$	8,910,000
Weighted average common shares outstanding	9,152,709			7,198,980			8,804,107			7,112,309			12,491,757		9,152,709			12,483,788		8,804,107
Basic earnings per common share	$	0.51		$	0.50		$	1.01		$	1.00		$	0.66	$	0.51		$	1.16	$	1.01
Diluted Net Income per Common Share
Available to Common Stockholders:
Net income available to common stockholders	$	4,654,000		$	3,606,000		$	8,910,000		$	7,095,000		$	8,200,000	$	4,654,000		$	14,464,000	$	8,910,000
Effect of assumed preferred stock conversion	275,000			550,000			825,000			1,100,000			—		275,000			—		825,000
Net income applicable to diluted earnings per share	$	4,929,000		$	4,156,000		$	9,735,000		$	8,195,000		$	8,200,000	$	4,929,000		$	14,464,000	$	9,735,000
Weighted average common shares outstanding	9,152,709			7,198,980			8,804,107			7,112,309			12,491,757		9,152,709			12,483,788		8,804,107
Dilutive potential common shares:
Assumed conversion of stock options	1,864			—			2,045			—			—		1,864			—		2,045
Restricted stock awarded	5,232			9,445			5,232			9,445			836		5,232			836		5,232
Assumed conversion of preferred stock	685,067			1,355,348			1,020,207			1,355,348			7,338		685,067			7,338		1,020,207
Dilutive potential common shares	692,163			1,364,793			1,027,484			1,364,793			8,174		692,163			8,174		1,027,484
Diluted weighted average common shares outstanding	9,844,872			8,563,773			9,831,591			8,477,102			12,499,931		9,844,872			12,491,962		9,831,591
Diluted earnings per common share	$	0.50		$	0.49		$	0.99		$	0.97		$	0.66	$	0.50		$	1.16	$	0.99

The following shares were not considered in computing diluted earnings per share for the three and six-month periods ended June 30, ~~2016~~2017 and ~~2015~~2016 because they were anti-dilutive:

Three months ended June 30, Six months ended June 30,
2016 2015 2016 2015
Stock options to purchase shares of common stock 24,500
45,500
24,500
45,500



	Three months ended June 30,		Six months ended June 30,
	2017	2016	2017	2016
Stock options to purchase shares of common stock	—	24,500	—	24,500

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, ~~2016~~2017 and December 31, ~~2015~~2016 were as follows (in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
June 30, 2016
June 30, 2017
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations & agencies	$	50,065	$	163	$	(18	)	$	50,210	$	143,014	$	627	$	(1,068	)	$	142,573
Obligations of states and political subdivisions	107,874		5,167		—			113,041		172,446		4,000		(434		)	176,012
Mortgage-backed securities: GSE residential	326,436		5,309		(241		)	331,504		354,993		2,967		(1,016		)	356,944
Trust preferred securities	3,094		—		(1,348		)	1,746		2,974		—		(550		)	2,424
Other securities	4,035		62		(21		)	4,076		4,034		153		—			4,187
Total available-for-sale	$	491,504	$	10,701	$	(1,628	)	$	500,577	$	677,461	$	7,747	$	(3,068	)	$	682,140
Held-to-maturity:
U.S. Treasury securities and obligations of U.S. government corporations & agencies	$	112,161	$	1,012	$	(61	)	$	113,112	$	74,281	$	405	$	(462	)	$	74,224

December 31, 2015
December 31, 2016
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations & agencies	$	90,368	$	41	$	(268	)	$	90,141	$	138,819	$	13	$	(2,508	)	$	136,324
Obligations of states and political subdivisions	107,164		3,608		(55		)	110,717		164,163		1,346		(2,804		)	162,705
Mortgage-backed securities: GSE residential	312,132		1,374		(1,452		)	312,054		318,829		531		(4,369		)	314,991
Trust preferred securities	3,130		—		(1,224		)	1,906		3,050		—		(1,398		)	1,652
Other securities	4,035		29		(34		)	4,030		4,034		147		(5		)	4,176
Total available-for-sale	$	516,829	$	5,052	$	(3,033	)	$	518,848	$	628,895	$	2,037	$	(11,084	)	$	619,848
Held-to-maturity:
U.S. Treasury securities and obligations of U.S. government corporations & agencies	$	85,208	$	743	$	(214	)	$	85,737	$	74,231	$	203	$	(1,338	)	$	73,096

Trust preferred securities represents one trust preferred pooled security issued by First Tennessee Financial (“FTN”). The unrealized loss of this security, which has a remaining maturity of ~~twenty-one~~twenty years, is primarily due to its long-term nature, a lack of demand or inactive market for the security, and concerns regarding the underlying financial institutions that have issued the trust preferred security. See the heading “Trust Preferred Securities” for further information regarding this security.

Realized gains and losses resulting from sales of securities were as follows during the six months ended June 30, ~~2016~~2017 and ~~2015~~2016 (in thousands):


	Three months ended June 30,				Six months ended June 30,				Three months ended June 30,					Six months ended June 30,
	2016		2015		2016		2015		2017			2016		2017			2016
Gross gains	$	404	$	1	$	664	$	230	$	352		$	404	$	352		$	664
Gross losses	—		—		—		—		(17		)	—		(17		)	—

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, ~~2016~~2017 and the weighted average yield for each range of maturities (dollars in thousands):


	One year or less			After 1 through 5 years			After 5 through 10 years			After ten years			Total			One year or less			After 1 through 5 years			After 5 through 10 years			After ten years			Total
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	29,992		$	20,218		$	—		$	—		$	50,210		$	80,317		$	49,608		$	12,648		$	—		$	142,573
Obligations of state and political subdivisions	9,234			54,318			48,099			1,390			113,041			18,742			85,828			69,484			1,958			176,012
Mortgage-backed securities: GSE residential	1,688			319,311			10,505			—			331,504			636			265,471			90,837			—			356,944
Trust preferred securities	—			—			—			1,746			1,746			—			—			—			2,424			2,424
Other securities	—			3,993			—			83			4,076			—			2,007			2,030			150			4,187
Total available-for-sale investments	$	40,914		$	397,840		$	58,604		$	3,219		$	500,577		$	99,695		$	402,914		$	174,999		$	4,532		$	682,140
Weighted average yield	2.09		%	2.34		%	2.95		%	1.96		%	2.39		%	2.14		%	2.49		%	2.62		%	2.65		%	2.47		%
Full tax-equivalent yield	2.68		%	2.65		%	4.72		%	2.58		%	2.89		%	2.54		%	2.89		%	3.43		%	3.60		%	2.98		%
Held to Maturity:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	82,537		$	24,542		$	5,082		$	—		$	112,161		$	44,993		$	29,288		$	—		$	—		$	74,281
Weighted average yield	1.75		%	2.11		%	2.06		%	—		%	1.84		%	1.79		%	2.08		%	—		%	—		%	1.90		%
Full tax-equivalent yield	1.75		%	2.11		%	2.06		%	—		%	1.84		%	1.79		%	2.08		%	—		%	—		%	1.90		%

The weighted average yields are calculated on the basis of the amortized cost and effective yields weighted for the scheduled maturity of each security. Tax-equivalent yields have been calculated using a 35% 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, ~~2016~~2017.

Investment securities carried at approximately $~~386~~495 million and $~~404~~509 million at June 30, ~~2016~~2017 and December 31, ~~2015~~2016, 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, ~~2016~~2017 and December 31, ~~2015~~2016 (in thousands):


	Less than 12 months					12 months or more					Total					Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
June 30, 2016
June 30, 2017
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	4,982	$	(18	)	$	—	$	—		$	4,982	$	(18	)	$	81,271	$	(1,068	)	$	—	$	—		$	81,271	$	(1,068	)
Obligations of states and political subdivisions	—		—			—		—			—		—			32,928		(434		)	—		—			32,928		(434		)
Mortgage-backed securities: GSE residential	23,259		(87		)	16,570		(154		)	39,829		(241		)	95,279		(797		)	7,123		(219		)	102,402		(1,016		)
Trust preferred securities	—		—			1,746		(1,348		)	1,746		(1,348		)	—		—			2,424		(550		)	2,424		(550		)
Other securities	1,979		(21		)	—		—			1,979		(21		)	—		—			—		—			—		—
Total	$	30,220	$	(126	)	$	18,316	$	(1,502	)	$	48,536	$	(1,628	)	$	209,478	$	(2,299	)	$	9,547	$	(769	)	$	219,025	$	(3,068	)
Held-to-maturity:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	24,504	$	(61	)	$	—	$	—		$	24,504	$	(61	)	$	44,558	$	(462	)	$	—	$	—		$	44,558	$	(462	)
December 31, 2015
December 31, 2016
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	34,942	$	(142	)	$	12,971	$	(126	)	$	47,913	$	(268	)	$	125,257	$	(2,508	)	$	—	$	—		$	125,257	$	(2,508	)
Obligations of states and political subdivisions	3,168		(32		)	979		(23		)	4,147		(55		)	93,405		(2,804		)	—		—			93,405		(2,804		)
Mortgage-backed securities: GSE residential	164,249		(841		)	20,011		(611		)	184,260		(1,452		)	266,319		(4,099		)	5,878		(270		)	272,197		(4,369		)
Trust preferred securities	—		—			1,906		(1,224		)	1,906		(1,224		)	—		—			1,652		(1,398		)	1,652		(1,398		)
Other securities	1,966		(34		)	—		—			1,966		(34		)	—		—			1,995		(5		)	1,995		(5		)
Total	$	204,325	$	(1,049	)	$	35,867	$	(1,984	)	$	240,192	$	(3,033	)	$	484,981	$	(9,411	)	$	9,525	$	(1,673	)	$	494,506	$	(11,084	)
Held-to-maturity:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	35,845	$	(214	)	$	—	$	—		$	35,845	$	(214	)	$	53,295	$	(1,338	)	$	—	$	—		$	53,295	$	(1,338	)

U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies. At June 30, ~~2016~~2017 and December 31, 2016 , there were no available-for sale U.S. Treasury securities and obligations of U.S. government corporations and agencies in a continuous unrealized loss position for twelve months or more. At December 31, 2015 there were six available-for-sale U.S. Treasury securities and obligations of U.S. government corporations and agencies with a fair value of $12,971,000 and unrealized losses of $126,000 in a continuous unrealized loss position for twelve months or more. At June 30, ~~2016~~2017 and December 31, ~~2015~~2016 there were also no held-to-maturity U.S. Treasury securities and obligations of U.S. government corporations and agencies in a continuous unrealized loss position for twelve months or more.

Obligations of states and political subdivisions. At June 30, ~~2016~~2017 and December 31, 2016, there were no obligations of states and political subdivisions ~~in a continuous unrealized loss position for twelve months or more. At~~ ~~December 31, 2015, there were two obligations of states and political subdivisions with a fair value of $979,000 and unrealized losses of $23,000~~ in a continuous unrealized loss position for twelve months or more.

Mortgage-backed Securities: GSE Residential. At June 30, ~~2016~~2017 there were ~~six~~four mortgage-backed securities with a fair value of ~~$16,570,000~~$7,123,000 and unrealized losses of ~~$154,000~~$219,000 in a continuous unrealized loss position for twelve months or more. At December 31, ~~2015~~2016, there were ~~seven~~two mortgage-backed securities with a fair value of ~~$20,011,000~~$5,878,000 and unrealized losses of ~~$611,000~~$270,000 in a continuous unrealized loss position for twelve months or more.

Trust Preferred Securities. At June 30, 2017, there was one trust preferred security with a fair value of $2,424,000 and unrealized loss of $550,000 in a continuous unrealized loss position for twelve months or more. At December 31, 2016, there was one trust preferred security with a fair value of $~~1,746,000~~1,652,000 and unrealized loss of $~~1,348,000~~ ~~in a continuous unrealized loss position for twelve months or more. At~~ ~~December 31, 2015, there was~~ ~~one~~ ~~trust preferred security with a fair value of~~ ~~$1,906,000~~ ~~and unrealized loss of~~ ~~$1,224,000~~1,398,000 in a continuous unrealized loss position for twelve months or more. The unrealized loss was primarily due to the long-term nature of the trust preferred security, a lack of demand or inactive market for the security, the impending change to the regulatory treatment of these securities, and concerns regarding the underlying financial institutions that have issued the trust preferred securities.

The Company recorded no other-than-temporary impairment (OTTI) for these securities during ~~2016~~2017 or ~~2015~~2016. Because it is not more-likely-than-not that the Company will be required to sell the remaining security before recovery of its new, lower amortized cost basis, which may be maturity, the Company does not consider the remainder of the investment to be other-than-temporarily impaired at June 30, ~~2016~~2017. However, future downgrades or additional deferrals and defaults in this security, could result in additional OTTI and consequently, have a material impact on future earnings.

Following are the details for the currently impaired trust preferred security (in thousands):

Book
Value
Market Value Unrealized Gains (Losses)
Other-than-
temporary
Impairment
Recorded To-date
PreTSL XXVIII $ 3,094
$ 1,746
$ (1,348 ) $ (1,111 )



	Book Value		Fair Value		Unrealized Gains (Losses)			Other-than- temporary Impairment Recorded To-date
PreTSL XXVIII	$	2,974	$	2,424	$	(550	)	$	(1,111	)

Other securities. At June 30, ~~2016~~ ~~and December 31, 2015,~~2017 there were no ~~corporate bonds~~other securities in a continuous unrealized loss position for twelve months or more. At December 31, 2016, there was one other security with a fair value of $1,995,000 and unrealized losses of $5,000 in a continuous unrealized loss position for twelve months or more.

The Company does not believe any other individual unrealized loss as of June 30, ~~2016~~2017 represents OTTI. However, given the continued disruption in 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.

The Company conducts periodic reviews to evaluate its investment securities to determine whether OTTI has occurred. While all securities are considered, the securities primarily impacted by OTTI evaluation are pooled trust preferred securities. For the pooled trust preferred security currently in the investment portfolio, an extensive review is conducted to determine if any additional OTTI has occurred. The Company utilizes an independent third-party to perform the OTTI evaluation. The Company's management reviews the assumption inputs and methodology with the third-party to obtain an understanding of them and determine if they are appropriate for the evaluation. Economic models are used to project future cash flows for the security based on current assumptions for discount rate, prepayments, default and deferral rates and recoveries. These assumptions are determined based on the structure of the issuance, the specific collateral underlying the security, historical performance of trust preferred securities and general state of the economy. The OTTI test compares the present value of the cash flows from quarter to quarter to determine if there has been an adverse change which could indicate additional OTTI.

The discount rate assumption used in the cash flow model is equal to the current yield used to accrete the beneficial interest. The Company’s current trust preferred security investment has a floating rate coupon of 3-month LIBOR plus 90 basis points. Since the estimate of 3-month LIBOR is based on the forward curve on the measurement date, and is therefore variable, the discount assumption for this security is a range of projected coupons over the expected life of the security.

The Company considers the likelihood that issuers will prepay their securities which changes the amount of expected cash flows. Factors such as the coupon rates of collateral, economic conditions and regulatory changes, such as the Dodd-Frank Act and Basel III, are considered.

The trust preferred security includes collateral issued by financial institutions and insurance companies. To identify bank issuers with a high risk of near term default or deferral, a credit model developed by the third-party is utilized that scores each bank issuer based on 29 different ratios covering capital adequacy, asset quality, earnings, liquidity, the Texas Ratio, and sensitivity to interest rates. To account for longer term bank default risk not captured by the credit model, it is assumed that banks will default at a rate of 2% annually for the first two years of the cash flow projection, and 36 basis points in each year thereafter. To project defaults for insurance issuers, each issuer’s credit rating is mapped to its idealized default rate, which is AM Best’s estimate of the historical default rate for insurance companies with that rating.

Lastly, it is assumed that trust preferred securities issued by banks that have already failed will have no recoveries, and that banks projected to default will have recoveries of 10%. Additionally, the 10% recovery assumption, incorporates the potential for cures by banks that are currently in deferral.

If the Company determines that a given pooled trust preferred security position will be subject to a write-down or loss, the Company records the expected credit loss as a charge to earnings.

Credit Losses Recognized on Investments. As described above, the Company’s investment in trust preferred security has experienced fair value deterioration due to credit losses but is not otherwise other-than-temporarily impaired. The following table provides information about the trust preferred security for which only a credit loss was recognized in income and other losses are recorded in other comprehensive income (loss) for the six months ended June 30, ~~2016~~2017 and ~~2015~~2016 (in thousands).


	Accumulated Credit Losses				Accumulated Credit Losses
	June 30, 2016		June 30, 2015		June 30, 2017		June 30, 2016
Credit losses on trust preferred securities held
Beginning of period	$	1,111	$	1,111	$	1,111	$	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	—		—		—		—
Additions related to increases in previously recognized OTTI losses	—		—		—		—
Reductions due to increases in expected cash flows	—		—		—		—
End of period	$	1,111	$	1,111	$	1,111	$	1,111

Note 4 – Loans and Allowance for Loan Losses

Loans are stated at the principal amount outstanding net of unearned discounts, unearned income and allowance for loan losses. Unearned income includes deferred loan origination fees reduced by loan origination costs and is 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, ~~2016~~2017 and December 31, ~~2015~~2016 follows (in thousands):


	June 30, 2016		December 31, 2015		June 30, 2017		December 31, 2016
Construction and land development	$	33,820	$	39,232	$	68,847	$	49,366
Agricultural real estate	122,384		122,579		123,508		126,216
1-4 Family residential properties	219,817		231,383		311,699		328,119
Multifamily residential properties	47,243		45,765		72,660		83,478
Commercial real estate	446,356		409,487		635,420		633,694
Loans secured by real estate	869,620		848,446		1,212,134		1,220,873
Agricultural loans	72,855		75,998		79,763		86,735
Commercial and industrial loans	301,873		305,851		422,982		412,637
Consumer loans	38,448		42,097		33,132		38,404
All other loans	33,719		11,317		85,338		77,602
Gross loans	1,316,515		1,283,709
Total Gross loans					1,833,349		1,836,251
Less: Loans held for sale					1,932		1,175
					1,831,417		1,835,076
Less:
Net deferred loan fees, premiums and discounts	2,674		2,788		7,715		10,259
Allowance for loan losses	15,164		14,576		18,209		16,753
Net loans	$	1,298,677	$	1,266,345	$	1,805,493	$	1,808,064

Net loans decreased $2.6 million as of June 30, 2017 compared to December 31, 2016. The decrease was primarily due to seasonal paydowns on agricultural operating loans and payoffs of other loans that were not renewed. 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 market value, taking into consideration future commitments to sell the loans. These loans are primarily for 1-4 family residential properties. ~~The balance of loans held for sale, excluded from the balances above, were~~ ~~$1,346,000~~ ~~and~~ ~~$968,000~~ at ~~June 30, 2016~~ ~~and~~ ~~December 31, 2015, respectively.~~

Most of the Company’s business activities are with customers located ~~within central Illinois.~~near the Company's branch locations in Illinois and Missouri. At June 30, ~~2016~~2017, the Company’s loan portfolio included $~~195.2~~203.3 million of loans to borrowers whose businesses are directly related to agriculture. Of this amount, $~~162.7~~164.7 million was concentrated in other grain farming. Total loans to borrowers whose businesses are directly related to agriculture decreased $~~3.4~~9.7 million from $~~198.6~~213.0 million at December 31, ~~2015~~2016 due to seasonal paydowns based upon timing of cash flow requirements. Loans concentrated in other grain farming ~~increased~~decreased ~~$1.2~~$6.6 million from $~~161.5~~171.3 million at December 31, ~~2015~~2016. 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 $~~65.0~~120.5 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 $~~116.4~~145.8 million of loans to lessors of non-residential buildings, and $~~64.4~~129.7 million of loans to lessors of residential buildings and dwellings.

borrowers are limited by federal ~~regulation; however, limits well~~regulation and the vast majority of borrowers are below regulatory thresholds. The Company can occasionally have outstanding balances to one borrower up to but not exceeding the regulatory ~~thresholds are generally observed.~~threshold should

underwriting guidelines warrant. The vast majority of the Company’s loans are to businesses located in the geographic market areas served by the Company’s branch bank system. Additionally, a significant portion of the collateral securing the loans in the portfolio is located within the Company’s primary geographic footprint. In general, the Company adheres to loan underwriting standards consistent with industry guidelines for all loan segments.

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

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

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

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

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

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

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

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

Allowance for Loan Losses

The allowance for loan losses represents the Company’s best 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 the Company 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, 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 losses by separately evaluating large impaired loans and nonimpaired 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, impairment is individually measured each quarter using one of three alternatives: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price, if available; or (3) the fair value of the collateral less costs to sell for collateral dependent loans and loans for which foreclosure is deemed to be probable. A specific allowance is assigned when expected cash flows or collateral do not justify the carrying amount of the loan. The carrying value of the loan reflects reductions from prior charge-offs.

Non-Impaired loans

Non-impaired loans comprise the vast majority of the Company’s total loan portfolio and include loans in accrual status and those credits not identified as troubled debt restructurings. A small portion of these loans are considered “criticized” due to the risk rating assigned reflecting elevated credit risk due to characteristics, such as a strained cash flow position, associated with the individual borrowers. Criticized loans are those assigned risk ratings of ~~Watch,~~Special Mention, Substandard, or Doubtful. Determining the appropriate level of the allowance for loan losses for all non-impaired loans is based on a migration analysis of net losses over a rolling twelve quarter period by loan segment. A weighted average of the net losses is 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 ~~recent~~prior 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 in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method for the three and six-months ended June 30, ~~2016~~2017 and ~~2015~~2016 and for the year ended December 31, ~~2015~~2016 (in thousands):


	Commercial/ Commercial Real Estate			Agricultural/ Agricultural Real Estate		Residential Real Estate			Consumer			Unallocated			Total			Commercial/ Commercial Real Estate			Agricultural/ Agricultural Real Estate			Residential Real Estate			Consumer			Unallocated		Total
Three months ended June 30, 2016
Three months ended June 30, 2017																		Three months ended June 30, 2017
Allowance for loan losses:
Balance, beginning of period	$	11,789		$	1,270	$	926		$	710		$	41		$	14,736		$	13,771		$	2,319		$	978		$	751		$	27	$	17,846
Provision charged to expense	388			179		56			88			22			733			1,667			86			23			57			7		1,840
Losses charged off	(572		)	—		(58		)	(109		)	—			(739		)	(871		)	(662		)	(50		)	(135		)	—		(1,718		)
Recoveries	390			—		—			44			—			434			180			—			18			43			—		241
Balance, end of period	$	11,995		$	1,449	$	924		$	733		$	63		$	15,164		$	14,747		$	1,743		$	969		$	716		$	34	$	18,209
Ending balance:
Individually evaluated for impairment	$	297		$	—	$	—		$	—		$	—		$	297		$	194		$	—		$	47		$	1		$	—	$	242
Collectively evaluated for impairment	$	11,698		$	1,449	$	924		$	733		$	63		$	14,867		$	14,553		$	1,743		$	922		$	715		$	34	$	17,967
Three months ended June 30, 2015
Allowance for loan losses:
Balance, beginning of period	$	11,459		$	1,291	$	753		$	386		$	217		$	14,106
Provision charged to expense	(123		)	20		(7		)	258			(5		)	143
Losses charged off	(62		)	—		(15		)	(304		)	—			(381		)
Recoveries	20			1		—			42			—			63
Balance, end of period	$	11,294		$	1,312	$	731		$	382		$	212		$	13,931
Ending balance:
Individually evaluated for impairment	$	537		$	—	$	—		$	—		$	—		$	537
Collectively evaluated for impairment	$	10,757		$	1,312	$	731		$	382		$	212		$	13,394
Six months ended June 30, 2016
Allowance for loan losses:
Balance, beginning of year	$	11,379		$	1,337	$	994		$	642		$	224		$	14,576
Provision charged to expense	613			111		72			211			(161		)	846
Losses charged off	(612		)	—		(142		)	(222		)	—			(976		)
Recoveries	615			1		—			102			—			718
Balance, end of period	$	11,995		$	1,449	$	924		$	733		$	63		$	15,164
Ending balance:
Individually evaluated for impairment	$	297		$	—	$	—		$	—		$	—		$	297
Collectively evaluated for impairment	$	11,698		$	1,449	$	924		$	733		$	63		$	14,867
Loans:
Ending balance	$	857,150		$	194,814	$	221,546		$	41,677		$	—		$	1,315,187
Ending balance:
Individually evaluated for impairment	$	1,555		$	430	$	—		$	21		$	—		$	2,006
Collectively evaluated for impairment	$	855,595		$	194,384	$	221,546		$	41,656		$	—		$	1,313,181
Acquired with deteriorated credit quality																		$	—		$	—		$	—		$	—		$	—	$	—



	Commercial/ Commercial Real Estate			Agricultural/ Agricultural Real Estate			Residential Real Estate			Consumer			Unallocated			Total
Three months ended June 30, 2016
Allowance for loan losses:
Balance, beginning of period	$	11,789		$	1,270		$	926		$	710		$	41		$	14,736
Provision charged to expense	388			179			56			88			22			733
Losses charged off	(572		)	—			(58		)	(109		)	—			(739		)
Recoveries	390			—			—			44			—			434
Balance, end of period	$	11,995		$	1,449		$	924		$	733		$	63		$	15,164
Ending balance:
Individually evaluated for impairment	$	297		$	—		$	—		$	—		$	—		$	297
Collectively evaluated for impairment	$	11,698		$	1,449		$	924		$	733		$	63		$	14,867
Acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—		$	—
Six months ended June 30, 2017
Allowance for loan losses:
Balance, beginning of year	$	12,901		$	2,249		$	874		$	693		$	36		$	16,753
Provision charged to expense	3,133			155			169			107			(2		)	3,562
Losses charged off	(1,483		)	(662		)	(99		)	(237		)	—			(2,481		)
Recoveries	196			1			25			153			—			375
Balance, end of period	$	14,747		$	1,743		$	969		$	716		$	34		$	18,209
Ending balance:
Individually evaluated for impairment	$	194		$	—		$	47		$	1		$	—		$	242
Collectively evaluated for impairment	$	14,553		$	1,743		$	922		$	715		$	34		$	17,967
Acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—		$	—
Loans:
Individually evaluated for impairment	$	5,653		$	261		$	1,494		$	248		$	—		$	7,656
Collectively evaluated for impairment	1,241,763			202,620			331,874			35,611			$	—		1,811,868
Acquired with deteriorated credit quality	6,110			—			—			—			$	—		6,110
Ending balance	$	1,253,526		$	202,881		$	333,368		$	35,859		$	—		$	1,825,634


	Commercial/ Commercial Real Estate			Agricultural/ Agricultural Real Estate			Residential Real Estate			Consumer			Unallocated			Total			Commercial/ Commercial Real Estate			Agricultural/ Agricultural Real Estate			Residential Real Estate			Consumer			Unallocated			Total
Six months ended June 30, 2015
Six months ended June 30, 2016																			Six months ended June 30, 2016
Allowance for loan losses:
Balance, beginning of year	$	10,914		$	1,360		$	790		$	386		$	232		$	13,682		$	11,379		$	1,337		$	994		$	642		$	224		$	14,576
Provision charged to expense	235			(49		)	(20		)	262			(20		)	408			613			111			72			211			(161		)	846
Losses charged off	(71		)	—			(40		)	(360		)	—			(471		)	(612		)	—			(142		)	(222		)	—			(976		)
Recoveries	216			1			1			94			—			312			615			1			—			102			—			718
Balance, end of period	$	11,294		$	1,312		$	731		$	382		$	212		$	13,931		$	11,995		$	1,449		$	924		$	733		$	63		$	15,164
Ending balance:
Individually evaluated for impairment	$	537		$	—		$	—		$	—		$	—		$	537		$	297		$	—		$	—		$	—		$	—		$	297
Collectively evaluated for impairment	$	10,757		$	1,312		$	731		$	382		$	212		$	13,394		$	11,698		$	1,449		$	924		$	733		$	63		$	14,867
Acquired with deteriorated credit quality																			$	—		$	—		$	—		$	—		$	—		$	—
Loans:
Ending balance	$	696,596		$	171,376		$	175,680		$	15,451		$	—		$	1,059,103
Ending balance:
Individually evaluated for impairment	$	1,766		$	—		$	—		$	—		$	—		$	1,766		$	1,555		$	430		$	—		$	21		$	—		$	2,006
Collectively evaluated for impairment	$	694,830		$	171,376		$	175,680		$	15,451		$	—		$	1,057,337		855,595			194,384			221,546			41,656			—			1,313,181
Year ended December 31, 2015
Acquired with deteriorated credit quality																			—			—			—			—			—			—
Ending balance																			$	857,150		$	194,814		$	221,546		$	41,677		$	—		$	1,315,187
Year ended December 31, 2016
Allowance for loan losses:
Balance, beginning of year	10,914			1,360			790			386			232			13,682			$	11,379		$	1,337		$	994		$	642		$	224		$	14,576
Provision charged to expense	451			(25		)	267			633			(8		)	1,318			1,467			933			113			501			(188		)	2,826
Losses charged off	(289		)	—			(64		)	(553		)	—			(906		)	(747		)	(30		)	(234		)	(664		)	—			(1,675		)
Recoveries	303			2			1			176			—			482			802			9			1			214			—			1,026
Balance, end of year	11,379			1,337			994			642			224			14,576			$	12,901		$	2,249		$	874		$	693		$	36		$	16,753
Ending balance:
Individually evaluated for impairment	$	134		$	—		$	—		$	—		$	—		$	134		$	192		$	660		$	6		$	—		$	—		$	858
Collectively evaluated for impairment	$	11,245		$	1,337		$	994		$	642		$	224		$	14,442		$	12,695		$	1,589		$	868		$	693		$	36		$	15,881
Acquired with deteriorated credit quality																			$	14		$	—		$	—		$	—		$	—		$	14
Loans:
Ending balance	$	807,736		$	198,066		$	232,348		$	43,739		$	—		$	1,281,889
Ending balance:
Individually evaluated for impairment	$	744		$	430		$	—		$	—		$	—		$	1,174		$	1,956		$	1,345		$	1,752		$	213		$	—		$	5,266
Collectively evaluated for impairment	$	806,992		$	197,636		$	232,348		$	43,739		$	—		$	1,280,715		1,199,003			211,168			360,825			41,644			—			1,812,640
Acquired with deteriorated credit quality																			3,840			—			4,246			—			—			8,086
Ending balance																			$	1,204,799		$	212,513		$	366,823		$	41,857		$	—		$	1,825,992

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

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

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

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”:

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

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

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

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

The following tables present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 (in thousands):


	Construction & Land Development				Agricultural Real Estate				1-4 Family Residential Properties				Multifamily Residential Properties				Construction & Land Development				Agricultural Real Estate				1-4 Family Residential Properties				Multifamily Residential Properties
	2016		2015		2016		2015		2016		2015		2016		2015		2017		2016		2017		2016		2017		2016		2017		2016
Pass	$	33,578	$	39,067	$	114,113	$	118,103	$	213,926	$	224,552	$	46,671	$	45,180	$	68,088	$	48,877	$	117,180	$	118,934	$	299,314	$	318,921	$	67,002	$	81,018
Watch	—		—		6,017		2,282		1,059		1,454		240		243
Special Mention																	—		—		5,213		5,190		2,623		918		1,618		1,651
Substandard	234		142		2,181		2,089		5,502		5,565		304		317		593		227		1,027		1,984		8,585		6,576		3,872		531
Doubtful	—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	33,812	$	39,209	$	122,311	$	122,474	$	220,487	$	231,571	$	47,215	$	45,740	$	68,681	$	49,104	$	123,420	$	126,108	$	310,522	$	326,415	$	72,492	$	83,200


	Commercial Real Estate (Nonfarm/Nonresidential)				Agricultural Loans				Commercial & Industrial Loans				Consumer Loans				Commercial Real Estate (Nonfarm/Nonresidential)				Agricultural Loans				Commercial & Industrial Loans				Consumer Loans
	2016		2015		2016		2015		2016		2015		2016		2015		2017		2016		2017		2016		2017		2016		2017		2016
Pass	$	424,934	$	386,769	$	70,878	$	75,437	$	295,484	$	298,633	$	37,696	$	41,278	$	594,806	$	610,025	$	74,333	$	81,922	$	401,352	$	397,762	$	32,366	$	37,624
Watch	9,565		10,498		1,849		210		3,695		4,686		19		—
Special Mention																	17,160		5,229		2,534		3,271		17,648		8,485		14		17
Substandard	11,333		11,905		49		239		1,908		1,741		334		301		20,526		14,881		2,892		1,492		2,280		2,786		434		387
Doubtful	—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	445,832	$	409,172	$	72,776	$	75,886	$	301,087	$	305,060	$	38,049	$	41,579	$	632,492	$	630,135	$	79,759	$	86,685	$	421,280	$	409,033	$	32,814	$	38,028


	All Other Loans				Total Loans				All Other Loans				Total Loans
	2016		2015		2016		2015		2017		2016		2017		2016
Pass	$	33,618	$	11,198	$	1,270,898	$	1,240,217	$	81,418	$	74,377	$	1,735,859	$	1,769,460
Watch	—		—		22,444		19,373
Special Mention									2,756		2,892		49,566		27,653
Substandard	—		—		21,845		22,299		—		15		40,209		28,879
Doubtful	—		—		—		—		—		—		—		—
Total	$	33,618	$	11,198	$	1,315,187	$	1,281,889	$	84,174	$	77,284	$	1,825,634	$	1,825,992

The following table presents the Company’s loan portfolio aging analysis at June 30, ~~2016~~2017 and December 31, ~~2015~~2016 (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		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, 2016
June 30, 2017
Construction and land development	$	—	$	189	$	—	$	189	$	33,623	$	33,812	$	—	$	—	$	—	$	—	$	—	$	68,681	$	68,681	$	—
Agricultural real estate	131		430		—		561		121,750		122,311		—		237		299		104		640		122,780		123,420		—
1-4 Family residential properties	371		554		225		1,150		219,337		220,487		—		1,462		57		1,235		2,754		307,768		310,522		—
Multifamily residential properties	240		—		—		240		46,975		47,215		—		—		98		—		98		72,394		72,492		—
Commercial real estate	52		—		469		521		445,311		445,832		—		1,720		304		1,196		3,220		629,272		632,492		—
Loans secured by real estate	794		1,173		694		2,661		866,996		869,657		—		3,419		758		2,535		6,712		1,200,895		1,207,607		—
Agricultural loans	20		—		—		20		72,756		72,776		—		931		199		—		1,130		78,629		79,759		—
Commercial and industrial loans	108		114		282		504		300,583		301,087		—		455		49		176		680		420,600		421,280		—
Consumer loans	52		7		1		60		37,989		38,049		—		160		3		88		251		32,563		32,814		—
All other loans	437		—		10		447		33,171		33,618		—		—		—		—		—		84,174		84,174		—
Total loans	$	1,411	$	1,294	$	987	$	3,692	$	1,311,495	$	1,315,187	$	—	$	4,965	$	1,009	$	2,799	$	8,773	$	1,816,861	$	1,825,634	$	—
December 31, 2015
December 31, 2016
Construction and land development	$	—	$	—	$	—	$	—	$	39,209	$	39,209	$	—	$	—	$	—	$	—	$	—	$	49,104	$	49,104	$	—
Agricultural real estate	106		—		—		106		122,368		122,474		—		—		131		293		424		125,684		126,108		—
1-4 Family residential properties	1,059		742		154		1,955		229,616		231,571		—		1,854		713		1,008		3,575		322,840		326,415		105
Multifamily residential properties	—		—		—		—		45,740		45,740		—		—		—		240		240		82,960		83,200		—
Commercial real estate	251		67		31		349		408,823		409,172		—		1,662		716		43		2,421		627,714		630,135		—
Loans secured by real estate	1,416		809		185		2,410		845,756		848,166		—		3,516		1,560		1,584		6,660		1,208,302		1,214,962		105
Agricultural loans	65		74		—		139		75,747		75,886		—		365		84		37		486		86,199		86,685		—
Commercial and industrial loans	65		476		196		737		304,323		305,060		—		395		155		249		799		408,234		409,033		—
Consumer loans	137		42		13		192		41,387		41,579		—		192		37		11		240		37,788		38,028		—
All other loans	—		—		—		—		11,198		11,198		—		—		—		—		—		77,284		77,284		—
Total loans	$	1,683	$	1,401	$	394	$	3,478	$	1,278,411	$	1,281,889	$	—	$	4,468	$	1,836	$	1,881	$	8,185	$	1,817,807	$	1,825,992	$	105

Impaired Loans

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

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

The following tables present impaired loans as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 (in thousands):


	June 30, 2016						December 31, 2015						June 30, 2017						December 31, 2016
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Recorded Balance		Unpaid Principal Balance		Specific Allowance		Recorded Balance		Unpaid Principal Balance		Specific Allowance		Recorded Balance		Unpaid Principal Balance		Specific Allowance
Loans with a specific allowance:
Construction and land development	$	—	$	—	$	—	$	—	$	—	$	—	$	593	$	593	$	—	$	227	$	227	$	—
Agricultural real estate	430		430		—		430		430		—		—		—		—		—		—		—
1-4 Family residential properties	—		—		—		—		—		—		1,494		1,762		47		997		997		6
Multifamily residential properties	304		304		—		316		316		—		605		605		—		528		528		—
Commercial real estate	848		848		208		—		—		—		3,589		3,703		78		863		884		—
Loans secured by real estate	1,582		1,582		208		746		746		—		6,281		6,663		125		2,615		2,636		6
Agricultural loans	—		—		—		—		—		—		261		1,071		—		1,345		1,345		660
Commercial and industrial loans	403		818		89		405		405		134		866		1,051		116		1,093		1,191		192
Consumer loans	21		21		—		23		23		—		248		248		1		213		213		—
All other loans	—		—		—		—		—		—		—		—		—		—		—		—
Total loans	$	2,006	$	2,421	$	297	$	1,174	$	1,174	$	134	$	7,656	$	9,033	$	242	$	5,266	$	5,385	$	858
Loans without a specific allowance:
Construction and land development	$	234	$	485	$	—	$	142	$	707	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Agricultural real estate	20		23		—		24		28		—		16		17		—		205		207		—
1-4 Family residential properties	1,198		1,372		—		1,373		1,688		—		1,403		1,869		—		2,497		3,207		—
Multifamily residential properties	—		—		—		1		1		—		3,395		3,395		—		3,419		3,547		—
Commercial real estate	283		304		—		304		325		—		2,924		3,154		—		6,224		6,802		—
Loans secured by real estate	1,735		2,184		—		1,844		2,749		—		7,738		8,435		—		12,345		13,763		—
Agricultural loans	15		15		—		79		79		—		565		7		—		43		66		—
Commercial and industrial loans	633		831		—		670		932		—		1,086		1,374		—		378		572		—
Consumer loans	231		235		—		242		256		—		80		90		—		206		211		—
All other loans	10		10		—		—		—		—		—		—		—		—		—		—
Total loans	$	2,624	$	3,275	$	—	$	2,835	$	4,016	$	—	$	9,469	$	9,906	$	—	$	12,972	$	14,612	$	—
Total loans:
Construction and land development	$	234	$	485	$	—	$	142	$	707	$	—	$	593	$	593	$	—	$	227	$	227	$	—
Agricultural real estate	450		453		—		454		458		—		16		17		—		205		207		—
1-4 Family residential properties	1,198		1,372		—		1,373		1,688		—		2,897		3,631		47		3,494		4,204		6
Multifamily residential properties	304		304		—		317		317		—		4,000		4,000		—		3,947		4,075		—
Commercial real estate	1,131		1,152		208		304		325		—		6,513		6,857		78		7,087		7,686		—
Loans secured by real estate	3,317		3,766		208		2,590		3,495		—		14,019		15,098		125		14,960		16,399		6
Agricultural loans	15		15		—		79		79		—		826		1,078		—		1,388		1,411		660
Commercial and industrial loans	1,036		1,649		89		1,075		1,337		134		1,952		2,425		116		1,471		1,763		192
Consumer loans	252		256		—		265		279		—		328		338		1		419		424		—
All other loans	10		10		—		—		—		—		—		—		—		—		—		—
Total loans	$	4,630	$	5,696	$	297	$	4,009	$	5,190	$	134	$	17,125	$	18,939	$	242	$	18,238	$	19,997	$	858

The following tables present average recorded investment and interest income recognized on impaired loans for the three and six-month periods ended June 30, ~~2016~~2017 and ~~2015~~2016 (in thousands):



	For the three months ended								For the three months ended
	June 30, 2016				June 30, 2015				June 30, 2017				June 30, 2016
	Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
Construction and land development	$	580	$	—	$	154	$	—	$	594	$	—	$	580	$	—
Agricultural real estate	450		—		93		1		16		—		450		—
1-4 Family residential properties	1,244		4		1,163		2		2,929		106		1,244		4
Multifamily residential properties	305		—		—		—		4,129		51		305		—
Commercial real estate	1,132		1		655		1		7,068		31		1,132		1
Loans secured by real estate	3,711		5		2,065		4		14,736		188		3,711		5
Agricultural loans	15		—		—		—		826		—		15		—
Commercial and industrial loans	1,100		—		584		1		1,781		2		1,100		—
Consumer loans	260		—		448		1		625		—		260		—
All other loans	10		—		—		—		—		—		10		—
Total loans	$	5,096	$	5	$	3,097	$	6	$	17,968	$	190	$	5,096	$	5


	For the six months ended								For the six months ended
	June 30, 2016				June 30, 2015				June 30, 2017				June 30, 2016
	Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
Construction and land development	$	632	$	—	$	154	$	—	$	347	$	—	$	632	$	—
Agricultural real estate	450		—		94		2		17		—		450		—
1-4 Family residential properties	1,264		8		1,188		3		3,121		117		1,264		8
Multifamily residential properties	307		—		—		—		4,133		94		307		—
Commercial real estate	1,133		1		659		1		5,316		62		1,133		1
Loans secured by real estate	3,786		9		2,095		6		12,934		273		3,786		9
Agricultural loans									930		—		16		—
Commercial and industrial loans	1,143		—		594		3		1,841		4		1,143		—
Consumer loans	264		—		448		1		628		—		264		—
Total loans	$	5,219	$	9	$	3,137	$	10	$	16,333	$	277	$	5,219	$	9

The amount of interest income recognized by the Company within the periods stated above was due to loans modified in a troubled debt ~~restructuring~~restructurings that remained on accrual status. The balance of loans modified in a troubled debt ~~restructuring~~restructurings included in the impaired loans at June 30, 2017 stated above that were still accruing was $594,000 of 1-4 Family residential properties, $3,395,000 of multifamily residential properties, $2,087,000 of commercial real estate, $33,000 of commercial & industrial loans and $2,000 of consumer loans. The balance of loans modified in a troubled debt restructurings at June 30, 2016 included in the impaired loans stated above that were still accruing was $253,000 of 1-4 ~~Family~~family residential properties, $34,000 of commercial real estate, $22,000 of commercial &and industrial loans, and ~~$10,000~~ of consumer loans. The balance of loans modified into a troubled debt restructuring at June 30, 2015 included in the impaired loans stated above that were still accruing was $67,000 of Agricultural real estate loans, ~~$342,000~~ ~~of 1-4 family residential properties, $36,000 commercial real estate and $39,000~~$10,000 of consumer loans. For the six months ended June 30, ~~2016~~2017 and ~~2015~~2016, the amount of interest income recognized using a cash-basis method of accounting during the period that the loans were impaired was not material.

Non Accrual Loans

The following table presents the Company’s recorded balance of nonaccrual loans as June 30, ~~2016~~2017 and December 31, ~~2015~~2016 (in thousands). This table excludes purchased impaired loans and performing troubled debt restructurings.


	June 30, 2016		December 31, 2015		June 30, 2017		December 31, 2016
Construction and land development	$	234	$	142	$	593	$	227
Agricultural real estate	450		454		16		205
1-4 Family residential properties	945		975		2,302		2,890
Multifamily residential properties	304		317		605		528
Commercial real estate	1,097		269		4,426		4,971
Loans secured by real estate	3,030		2,157		7,942		8,821
Agricultural loans	15		79		826		1,388
Commercial and industrial loans	1,014		928		1,622		1,430
Consumer loans	242		248		624		414
All other loans	10		—
Total loans	$	4,311	$	3,412	$	11,014	$	12,053

Interest income that would have been recorded under the original terms of such nonaccrual loans totaled $~~80,000~~140,000 and $~~39,000~~80,000 for the six months ended June 30, ~~2016~~2017 and ~~2015~~2016, respectively.

Purchased Credit-Impaired Loans

The Company acquired certain loans considered to be credit-impaired ("PCI") in its business combination with First Clover Leaf during the third quarter of 2016. 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 is included in the consolidated balance sheet amounts for Loans. The Company had no PCI loans prior to the First Clover Leaf acquisition. The amount of these loans at June 30, 2017 and December 31, 2016 are as follows (in thousands):



	June 30, 2017		December 31, 2016
1-4 Family residential properties	$	—	$	827
Multifamily residential properties	3,396		3,419
Commercial real estate	2,698		3,816
Loans secured by real estate	6,094		8,062
Commercial and industrial loans	16		24
Carrying amount	6,110		8,086
Allowance for loan losses	—		14
Carrying amount, net of allowance	$	6,110	$	8,072

As of September 8, 2016, the acquisition date, the principal outstanding of PCI loans totaled $10,650,000 and the fair value of PCI loans totaled $8,688,000. For PCI loans, the difference between contractually required payments at acquisition and the cash flow expected to 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. As of June 30, 2017 there is no accretable yield on the PCI loans acquired. 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 a positive impact on interest income. As of December 31, 2016, there was one loan with a change in expected cash flows and as a result, approximately $14,000 of provision was recorded. Subsequently, expected cash flows improved due to paydown of the loan balance and the provision was reversed. There was no provision recorded for the remaining PCI loans at June 30, 2017.

Troubled Debt Restructuring

The balance of troubled debt restructurings ("TDRs") at June 30, ~~2016~~2017 and December 31, ~~2015~~2016 was $~~1.63~~9.3 million and $~~1.74~~10.9 million, respectively. There ~~were no~~was $114,000 and $196,000 in specific reserves established with respect to these loans as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016., 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, ~~2016~~2017 and December 31, ~~2015~~2016 (in thousands).

Troubled debt restructurings: June 30,
2016 December 31,
2015
Construction and land development $ 234
$ 142
Agricultural real estate 232
232
1-4 Family residential properties 413
515
Commercial real estate 118
124
Loans secured by real estate 997
1,013
Commercial and industrial loans 415
491
Consumer loans 214
239
Total $ 1,626
$ 1,743
Performing troubled debt restructurings:

1-4 Family residential properties 253
$ 397
Commercial real estate 34
36
Loans secured by real estate 287
433
Commercial and industrial loans 22
147
Consumer loans 10
21
Total $ 319
$ 601



Troubled debt restructurings:	June 30, 2017		December 31, 2016
Construction and land development	$	—	$	227
1-4 Family residential properties	909		1,753
Multifamily residential properties	3,395		3,419
Commercial real estate	3,032		4,125
Loans secured by real estate	7,336		9,524
Agricultural loans	819		—
Commercial and industrial loans	920		1,040
Consumer loans	248		325
Total	$	9,323	$	10,889
Performing troubled debt restructurings:
1-4 Family residential properties	594		$	603
Multifamily residential properties	3,395		3,419
Commercial real estate	2,087		2,116
Loans secured by real estate	6,076		6,138
Commercial and industrial loans	33		41
Consumer loans	2		6
Total	$	6,111	$	6,185

The decrease in TDRs during the period was was primarily due to loans that paid off. The following table presents loans modified as TDRs during the six months ended June 30, ~~2016~~2017 and ~~2015~~2016, as a result of various modified loan factors (in thousands):


	June 30, 2016				June 30, 2015				June 30, 2017				June 30, 2016
	Number of Modifications	Recorded Investment		Type of Modifications	Number of Modifications	Recorded Investment		Type of Modifications	Number of Modifications	Recorded Investment		Type of Modifications	Number of Modifications	Recorded Investment		Type of Modifications
Construction and land development	1	$	234	(b)(c)	—	$	—		—	$	—		1	$	234	(b)(c)
Farm Loans	—	—			1	23		(b)
1-4 Family residential properties	1	48		(c)	4	79		(b)(c)	—	—			1	48		(c)
Loans secured by real estate	2	282			5	102			—	—			2	282
Agricultural loans									1	819		(b)(c)	—	—
Commercial and industrial loans	3	75		(b)(c)	2	227		(b)(c)	—	—			3	75		(b)(c)
Consumer Loans	—	—			3	439		(b)(c)
Total	5	$	357		10	$	768		1	$	819		5	$	357

Type of modifications:

(a) Reduction of stated interest rate of loan

(b) Change in payment terms

A loan is considered to be in payment default once it is 90 days past due under the modified terms. There were no loans modified as troubled debt restructurings during the prior twelve months that experienced defaults for six months ended June 30, 2017. There was one loan modified as troubled debt restructuring during the prior twelve months that experienced defaults ~~during the~~ ~~six months~~ ~~ended~~ ~~June 30, 2016. There were no loans in payment default~~ as of December 31, ~~2015~~.2016.

The balance of real estate owned includes ~~$436,000~~$2,689,000 and ~~$477,000~~$1,982,000 of foreclosed ~~residential~~ real estate properties recorded as a result of obtaining physical possession of the property at June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively. ~~the~~The Company also held $1,700,000 of repossessed collateral, consisting of machinery and equipment, acquired with foreclosed real estate. The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceeds are in process was ~~$157,000~~$606,000 and ~~$55,000~~$661,000 at June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively.

Note 5 -- Goodwill and Intangible Assets

The Company has goodwill from business combinations, intangible assets from branch acquisitions, ~~and~~ identifiable intangible assets assigned to core deposit relationships and customer lists of ~~the Insurance agency.~~

First Mid Insurance. The following table presents gross carrying value and accumulated amortization by major intangible asset class as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 (in thousands):


	June 30, 2016				December 31, 2015				June 30, 2017				December 31, 2016
	Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization
Goodwill not subject to amortization (effective 1/1/02)	$	44,767	$	3,760	$	44,767	$	3,760	$	61,551	$	3,760	$	61,551	$	3,760
Intangibles from branch acquisition	3,015		3,015		3,015		3,015		3,015		3,015		3,015		3,015
Core deposit intangibles	15,202		8,783		15,202		8,017		19,862		10,587		19,862		9,644
Other Intangibles	3,731		2,010		3,731		1,919
Other intangibles									3,731		2,193		3,731		2,102
	$	66,715	$	17,568	$	66,715	$	16,711	$	88,159	$	19,555	$	88,159	$	18,521

~~Goodwill~~During the third quarter of ~~$14~~2016, goodwill of $16.8 million was recorded for the acquisition of ~~twelve Old National Bank Branches during the third quarter of 2015.~~First Clover Leaf. The goodwill consists largely of the synergies and economies of scale expected from combining the operations of ~~the Company and the ONB Branches.~~First Clover Leaf Bank with First Mid Bank. All of the goodwill was assigned to the banking segment of the Company. The Company expects this goodwill towill not be ~~fully~~ deductible for tax purposes.

The following table provides a reconciliation of the purchase price paid for ~~the Branches~~First Clover Leaf and the amount of goodwill recorded (in thousands):



Purchase price (in excess of net book value)			$	8,741
Less purchase accounting adjustments:
Fair value of securities	737
Fair value of loans, net	3,475
Fair value of OREO	754
Fair value of premises and equipment	(1,963	)
Fair value of time deposits	1,994
Fair value of FHLB advances	113
Fair value of subordinated debentures	(731	)
Core deposit intangible	(4,660	)
Other assets	8,325
			8,044
Resulting goodwill from acquisition			$	16,785

As part of the acquisition of First Clover Leaf Bank, the Company acquired mortgage servicing rights valued at $1,069,000. The following table summarizes the activity pertaining to mortgage servicing rights included in intangible assets as of June 30, 2017 and December 31, 2016 (in thousands):

Purchase price $ 15,892
Less purchase accounting adjustments:
     Fair value of loans $ 3,377

     Fair value of premises and equipment 125

     Fair value of time deposits 837

     Core deposit intangible (6,216 )
     Other assets 259

(1,618 )
Resulting goodwill from acquisition $ 14,274

During the fourth quarter of 2015, goodwill of $980,000 was also recorded for the acquisition of certain assets used by Illiana Insurance Agency, Ltd., in connection with its health plan and life insurance and annuity's business. The following table provides a reconciliation of the purchase price paid for Illiana and the amount of goodwill recorded (in thousands):

Purchase price $ 2,807
Less purchase accounting adjustments:
Insurance company intangibles (1,827 )
Resulting goodwill from acquisition $ 980



	June 30, 2017			December 31, 2016
Beginning Balance	$	985		$	—
Mortgage servicing rights acquired during period	—			1,069
Mortgage servicing rights capitalized	—			14
Mortgage servicing rights amortized	(72		)	(98		)
Ending Balance	$	913		$	985

Total amortization expense for the six months ended June 30, ~~2016~~2017 and ~~2015~~2016 was as follows (in thousands):


	Three months ended June 30,				Six months ended June 30,				Three months ended June 30,				Six months ended June 30,
	2016		2015		2016		2015		2017		2016		2017		2016
Core deposit intangibles	357		156		766		311		472		357		$	943	$	766
Other Intangibles	45		—		91		—
Other intangibles									45		45		91		91
Mortgage servicing rights									42		—		72		—
	$	402	$	156	$	857	$	311	$	559	$	402	$	1,106	$	857

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 01/01/16-06/30/16	$	857
For period 01/01/17-06/30/17			$	1,106
Estimated amortization expense:
For period 07/01/16-12/31/16	715
For year ended 12/31/17	1,322
For period 07/01/17-12/31/17			1,049
For year ended 12/31/18	1,193		1,954
For year ended 12/31/19	1,079		1,778
For year ended 12/31/20	933		1,576
For year ended 12/31/21	710		1,304
For year ended 12/31/22			1,195

In accordance with the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” codified within ASC 350, the Company performed testing of goodwill for impairment as of September 30, ~~2015~~2016 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 ~~$131.1~~$142.4 million at June 30, ~~2016, an increase~~2017, a decrease of ~~$2.3~~$43.4 million from ~~$128.8~~$185.8 million at December 31, ~~2015.~~2016. The ~~increase~~decrease during the first six months of ~~2016~~2017 was primarily due to ~~increases~~decreases in balances of customers due to changes in cash flow needs for their businesses. All of the transactions have overnight ~~maturities.~~maturities with a weighted average rate of 0.10%.

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

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

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


	June 30, 2016		December 31, 2015		June 30, 2017		December 31, 2016
US Treasury securities and obligations of U.S. government corporations & agencies	$	73,522	$	85,805	$	106,395	$	100,526
Obligations of states and political subdivisions					—		1,173
Mortgage-backed securities: GSE: residential	57,577		43,037		36,016		84,064
Total	$	131,099	$	128,842	$	142,411	$	185,763

FHLB borrowings increased to ~~$40~~$45 million at June 30, ~~2016 from $20~~2017 compared to $40 million at December 31, ~~2015.~~2016. At June 30, ~~2016~~2017 the advances were as follows:

$5 million advance with a ~~10-year~~3-year maturity, at ~~4.58%~~1.30%, due ~~July 14, 2016, one year lockout, callable quarterly~~

~~$5 million advance with a 3-month maturity, at 0.50%, due September 19, 2016~~

~~$5 million advance with a 6-month maturity, at 0.59%, due December, 19, 2016~~

~~$5 million advance with a 1-year maturity, at 0.82%, due June 21, 2017~~May 7, 2018

$5 million advance with a 2-year maturity, at 0.99%, due June 21, 2018

$10 million advance with a 3-year maturity, at 1.42%, due November 5, 2018

$5 million advance with a 1.5-year maturity, at 1.49%, due December 28, 2018

$5 million advance with a 2-year maturity, at 1.56%, due June, 28, 2019

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

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

$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.

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 and include subordinated tranches of collateralized mortgage obligations and investments in trust preferred securities.

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.

The trust preferred securities are collateralized debt obligation securities that are backed by trust preferred securities issued by banks, thrifts, and insurance companies. The market for these securities at June 30, ~~2016~~2017 is not active and markets for similar securities are also not active. The inactivity was evidenced first by a significant widening of the bid-ask spread in the brokered markets in which trust preferred securities trade and then by a significant decrease in the volume of trades relative to historical levels. The new issue market is also inactive and will continue to be, as a result of the Dodd-Frank Act’s elimination of trust preferred securities from Tier 1 capital for certain holding companies. There are currently very few market participants who are willing and or able to transact for these securities. The market values for these securities are very depressed relative to historical levels. Given conditions in the debt markets today and the absence of observable transactions in the secondary and new issue markets, we determined:

The few observable transactions and market quotations that are available are not reliable for purposes of determining fair value at June 30, ~~2016,~~2017,

An income valuation approach technique (present value technique) that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs will be equally or more representative of fair value than the market approach valuation technique used at prior measurement dates, and

The trust preferred securities held by the Company will be classified within Level 3 of the fair value hierarchy because we determined that significant adjustments are required to determine fair value at the measurement date.

The following table presents the Company’s assets 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, ~~2016~~2017 and December 31, ~~2015~~2016 (in thousands):


			Fair Value Measurements Using								Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2016
June 30, 2017
Available-for-sale securities:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	50,210		—		50,210		—		142,573		—		142,573		—
Obligations of states and political subdivisions	113,041		—		113,041		—		176,012		—		176,012		—
Mortgage-backed securities	331,504		—		331,504		—		356,944		—		356,944		—
Trust preferred securities	1,746		—		—		1,746		2,424		—		—		2,424
Other securities	4,076		83		3,993		—		4,187		151		4,036		—
Total available-for-sale securities	500,577		83		498,748		1,746		$	682,140	$	151	$	679,565	$	2,424
December 31, 2015
December 31, 2016
Available-for-sale securities:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	90,141		—		90,141		—		136,324		—		136,324		—
Obligations of states and political subdivisions	110,717		—		110,717		—		162,705		—		162,705		—
Mortgage-backed securities	312,054		—		312,054		—		314,991		—		314,991		—
Trust preferred securities	1,906		—		—		1,906		1,652		—		—		1,652
Other securities	4,030		64		3,966		—		4,176		144		4,032		—
Total available-for-sale securities	$	518,848	$	64	$	516,878	$	1,906	$	619,848	$	144	$	618,052	$	1,652

The change in fair value of assets measured on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, ~~2016~~2017 and ~~2015~~2016 is summarized as follows (in thousands):


							Trust Preferred Securities
	Trust Preferred Securities						Three months ended						Six months ended
	June 30, 2016			June 30, 2015			June 30, 2017			June 30, 2016			June 30, 2017			June 30, 2016
Beginning balance	$	1,906		$	364		$	1,638		$	1,698		$	1,652		$	1,906
Transfers into Level 3	—			—			—			—			—			—
Transfers out of Level 3	—			—			—			—			—			—
Total gains or losses:
Included in net income	—			—			—			—			—			—
Included in other comprehensive income (loss)	(124		)	1,876			825			67			848			(124		)
Purchases, issuances, sales and settlements:
Purchases	—			—			—			—			—			—
Issuances	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	(36		)	(99		)	(39		)	(19		)	(76		)	(36		)
Ending balance	$	1,746		$	2,141		$	2,424		$	1,746		$	2,424		$	1,746
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, ~~2016~~2017 was $~~1,274,000~~9,563,000 and a fair value of $~~977,000~~9,321,000 resulting in specific loss exposures of $~~297,000~~242,000.

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, ~~2016~~2017 was $~~436,000~~2,689,000. Other real estate owned included in the total carrying amount and measured at fair value on a nonrecurring basis during the period amounted to $~~89,000~~111,000.

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, ~~2016~~2017 and December 31, ~~2015~~2016 (in thousands):


	Fair Value Measurements Using								Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2016
June 30, 2017
Impaired loans (collateral dependent)	$	977	$	—	$	—	$	977	$	9,321	$	—	$	—	$	9,321
Foreclosed assets held for sale	89		—		—		89		111		—		—		111
December 31, 2015
December 31, 2016
Impaired loans (collateral dependent)	$	294	$	—	$	—	$	294	$	6,938	$	—	$	—	$	6,938
Foreclosed assets held for sale	423		—		—		423		173		—		—		173

Sensitivity of Significant Unobservable Inputs

The following is a discussion of the sensitivity of significant unobservable inputs, the interrelationships between those inputs and other unobservable inputs used in recurring fair value measurement and of how those inputs might magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement.

Trust Preferred Securities. The significant unobservable inputs used in the fair value measurement of the Company’s trust preferred securities are offered quotes and comparability adjustments. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, changes in either of those inputs will not affect the other input.

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, 2017 and December 31, 2016 (in thousands).


June 30, 2016	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
June 30, 2017												Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Trust Preferred Securities	$	1,746	Discounted cash flow	Discount rate	11.5%							$	2,424	Discounted cash flow	Discount rate	13.3%
				Constant prepayment rate (1)	1.3%										Constant prepayment rate (1)	1.3%
				Cumulative projected prepayments	23.6%										Cumulative projected prepayments	21.8%
				Probability of default	0.4%										Probability of default	0.5%
				Projected cures given deferral	100.0%										Projected cures given deferral	0.0%
				Loss severity	97.3%										Loss severity	97.6%
Impaired loans (collateral dependent)	$	977	Third party valuations	Discount to reflect realizable value	0	%	-	40%	(	20%	)	$	9,321	Third party valuations	Discount to reflect realizable value	0	%	-	40%	(	20%	)
Foreclosed assets held for sale	$	89	Third party valuations	Discount to reflect realizable value less estimated selling costs	0	%	-	40%	(	35%	)	$	111	Third party valuations	Discount to reflect realizable value less estimated selling costs	0	%	-	40%	(	35%	)


December 31, 2015	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
December 31, 2016												Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Trust Preferred Securities	$	1,906	Discounted cash flow	Discount rate	11.4%							$	1,652	Discounted cash flow	Discount rate	13.6%
				Constant prepayment rate (1)	1.3%										Constant prepayment rate (1)	1.3%
				Cumulative projected prepayments	23.6%										Cumulative projected prepayments	22.4%
				Probability of default	0.4%										Probability of default	0.5%
				Projected cures given deferral	100.0%										Projected cures given deferral	0.0%
				Loss severity	97.3%										Loss severity	97.6%
Impaired loans (collateral dependent)	$	294	Third party valuations	Discount to reflect realizable value	0	%	-	40%	(	20%	)	$	6,938	Third party valuations	Discount to reflect realizable value	0	%	-	40%	(	20%	)
Foreclosed assets held for sale	$	423	Third party valuations	Discount to reflect realizable value less estimated selling costs	0	%	-	40%	(	35%	)	$	173	Third party valuations	Discount to reflect realizable value less estimated selling costs	0	%	-	40%	(	35%	)

(1) Every five years

Other. The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying balance sheets at amounts other than fair value.

Cash and Cash Equivalents, Federal Funds Sold, Interest Receivable and Federal Reserve and Federal Home Loan Bank Stock. The carrying amount approximates fair value.

Certificates of Deposit Investments. The fair value of certificates of deposit investments is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.

Held-to-Maturity Securities. Fair Value is based on quoted market prices, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Loans Held for Sale. Loans expected to be sold are classified as held for sale and are recorded at the lower of aggregate cost or market value.

Loans. For loans with floating interest rates, it is assumed that the estimated fair values generally approximate the carrying amount balances. Fixed rate loans have been valued using a discounted present value of projected cash flow. The discount rate used in these calculations is the current rate at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The carrying amount of accrued interest approximates its fair value.

Deposits. Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount of these deposits approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.

Securities Sold Under Agreements to Repurchase. The fair value of securities sold under agreements to repurchased is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.

Interest Payable. The carrying amount approximates fair value.

Junior Subordinated Debentures, Federal Home Loan Bank Borrowings and Other Borrowings. Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.

The following tables present estimated fair values of the Company’s financial instruments at June 30, ~~2016~~2017 and December 31, ~~2015~~2016 in accordance with FAS 107-1 and APB 28-1, codified with ASC 805 (in thousands):


	Carrying Amount		Fair Value		Level 1		Level 2		Level 3		Carrying Amount		Fair Value		Level 1		Level 2		Level 3
June 30, 2016
June 30, 2017
Financial Assets
Cash and due from banks	$	52,581	$	52,581	$	52,581	$	—	$	—	$	73,398	$	73,398	$	73,398	$	—	$	—
Federal funds sold	491		491		491		—		—		491		491		491		—		—
Certificates of deposit investments	30,307		30,391		—		30,391		—		1,685		1,712		—		1,712		—
Available-for-sale securities	500,577		500,577		83		498,748		1,746		682,140		682,140		151		679,565		2,424
Held-to-maturity securities	112,161		113,112		—		113,112		—		74,281		74,224		—		74,224		—
Loans held for sale	1,346		1,346		—		1,346		—		1,932		1,932		—		1,932		—
Loans net of allowance for loan losses	1,298,677		1,297,118		—		—		1,297,118		1,805,493		1,724,890		—		—		1,724,890
Interest receivable	7,299		7,299		—		7,299		—		9,620		9,620		—		9,620		—
Federal Reserve Bank stock	2,272		2,272		—		2,272		—		4,128		4,128		—		4,128		—
Federal Home Loan Bank stock	3,391		3,391		—		3,391		—		2,407		2,407		—		2,407		—
Financial Liabilities
Deposits	$	1,704,199	$	1,704,869	$	—	$	1,454,392	$	250,477	$	2,289,406	$	2,293,494	$	—	$	1,960,434	$	333,060
Securities sold under agreements to repurchase	131,099		131,125		—		131,125		—		142,411		142,406		—		142,406		—
Interest payable	385		385		—		385		—		502		502		—		502		—
Federal Home Loan Bank borrowings	40,000		40,979		—		40,979		—		45,066		45,408		—		45,408		—
Other borrowings											12,188		12,188		—		12,188		—
Junior subordinated debentures	20,620		13,223		—		13,223		—		23,959		17,396		—		17,396		—


	Carrying Amount		Fair Value		Level 1		Level 2		Level 3		Carrying Amount		Fair Value		Level 1		Level 2		Level 3
December 31, 2015
December 31, 2016
Financial Assets
Cash and due from banks	$	115,292	$	115,292	$	115,292	$	—	$	—	$	137,002	$	137,002	$	137,002	$	—	$	—
Federal funds sold	492		492		492		—		—		38,900		38,900		38,900		—		—
Certificates of deposit investments	25,000		25,056		—		25,056		—		14,643		14,651		—		14,651		—
Available-for-sale securities	518,848		518,848		64		516,878		1,906		619,848		619,848		144		618,052		1,652
Held-to-maturity securities	85,208		85,737		—		85,737		—		74,231		73,096		—		73,096		—
Loans held for sale	968		968		—		968		—		1,175		1,175		—		1,175		—
Loans net of allowance for loan losses	1,266,345		1,265,126		—		—		1,265,126		1,808,064		1,795,764		—		—		1,795,764
Interest receivable	8,085		8,085		—		8,085		—		10,553		10,553		—		10,553		—
Federal Reserve Bank stock	2,272		2,272		—		2,272		—		3,949		3,949		—		3,949		—
Federal Home Loan Bank stock	3,391		3,391		—		3,391		—		4,389		4,389		—		4,389		—
Financial Liabilities
Deposits	$	1,732,568	$	1,732,463	$	—	$	1,489,130	$	243,333	$	2,329,887	$	2,331,725	$	—	$	1,976,806	$	354,919
Securities sold under agreements to repurchase	128,842		128,843		—		128,843		—		185,763		185,766		—		185,766		—
Interest payable	356		356		—		356		—		535		535		—		535		—
Federal Home Loan Bank borrowings	20,000		20,422		—		20,422		—		40,094		40,318		—		40,318		—
Other borrowings											18,063		18,063		—		18,063		—
Junior subordinated debentures	20,620		13,207		—		13,207		—		23,917		17,068		—		17,068		—

Note 8 -- Business ~~Combination~~Combinations

First Clover Leaf Financial Corp

On ~~August 14, 2015,~~April 26, 2016, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with First ~~Mid-Illinois Bank completed~~Clover Leaf Financial Corp., a Maryland corporation ("First Clover Leaf"), pursuant to which, amongst other things, the ~~acquisition~~Company agreed to acquire 100% of ~~twelve Illinois bank branches ("ONB Branches") from Old National Bank,~~the issued and outstanding shares of First Clover Leaf pursuant to a ~~national banking association having its principal office in Evansville, Indiana. The acquisition expanded~~business combination whereby First ~~Mid Bank's service area~~Clover Leaf would merge with and into ~~Southern Illinois~~the Company, with the Company as the surviving entity (the "Merger").

At the effective time of the Merger, 25% of the shares of First Clover Leaf common stock issued and ~~provided a stable source of core deposits. Pursuant~~outstanding immediately prior to the ~~terms~~effective time of the ~~Branch Purchase~~Merger converted into the right to receive $12.87 per share, for an approximate aggregate total of $22,545,000, and ~~Assumption Agreement, dated January 30, 2015, as amended, by~~75% of the shares of First Clover Leaf common stock issued and between First Mid Bank and Old National Bank, First Mid Bank, among other matters, assumed certain deposit liabilities and acquired certain loans, as well as cash, real property, furniture, and other fixed operating assets associatedoutstanding immediately prior to the effective time of the Merger converted into the right to receive 0.495 shares of the Company’s common stock, par value $4.00 per share, for an approximate aggregate total of 2,600,616 shares of the Company’s common stock. Cash in lieu of fractional shares of Company common stock were issued in connection with the ~~ONB Branches. The deposit and loan balances assumed were approximately $453~~Merger.

First Clover Leaf had $659 million ~~and $156 million~~in assets at book value ~~respectively. First Mid Bank also assumed certain leases,~~including $449 million in loans and ~~entered into certain subleases, related to the ONB Branches.~~

~~First Mid Bank agreed to pay Old National Bank the sum of: (i)~~$535 million in deposits. As a ~~deposit premium of 3.6% on the amount of deposit accounts~~result of the ~~ONB Branches, other than brokered deposits~~acquisition, the Company increased its deposit base and ~~municipal deposits, which equated~~reduced transaction costs. The Company also expects to ~~approximately $15.9 million, (ii) $500,000, representing the fixed deposit premium related to the municipal deposits~~reduce costs through economies of the Branches, (iii) the principal amount of the loans being purchased, plus the accrued but unpaid interest, (iv) the aggregate net book value of the other assets purchased including facilities of approximately $4.5 million, and (v) the aggregate amount of cash on hand of $2.7 million as of the closing. The acquisition was settled by Old National Bank paying cash of approximately $276.8 million to First Mid Bank for the difference between these amounts and the total deposits assumed.scale.

The ~~purchase~~acquisition was accounted for under the acquisition method of accounting in accordance with ~~Accounting Standards Codification (“ASC”)~~ASC 805, “Business Combinations ("ASC 805"),” and accordingly the assets and liabilities were recorded at their estimated fair values on the date of acquisition. Fair values are subject to refinement for up to one year after the closing date of September 8, 2016 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 $16.8 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 in the St. Louis market, 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 Clover Leaf acquisition (in thousands).


	Acquired Book Value		Fair Value Adjustments			As Recorded by First Mid Bank		Acquired Book Value			Fair Value Adjustments			As Recorded by First Clover Leaf Bank
Assets
Cash	$	279,468	$	—		$	279,468	$	59,320		$	—		$	59,320
Investment Securities								109,911			(737		)	109,174
Loans	155,774		(3,377		)	152,397		448,668			(10,403		)	438,265
Allowance for loan losses								(6,928		)	6,928			—
Other real estate owned								2,741			(754		)	1,987
Premises and equipment	4,547		(125		)	4,422		9,618			1,963			11,581
Goodwill	—		14,274			14,274		11,385			5,400			16,785
Core deposit intangible	—		6,216			6,216		99			4,561			4,660
Other assets	1,433		(259		)	1,174		23,974			3,159			27,133
Total assets acquired	$	441,222	$	16,729		$	457,951	$	658,788		$	10,117		$	668,905
Liabilities
Liabilities and Stockholders' Equity
Deposits	$	452,810	$	837		$	453,647	$	534,692		$	1,994		$	536,686
Securities sold under agreements to repurchase	3,797		—			3,797		23,263			—			23,263
FHLB advances								15,000			113			15,113
Subordinated debentures								4,000			(731		)	3,269
Other liabilities	507		—			507		2,103			—			2,103
Total liabilities assumed	$	457,114	$	837		$	457,951	579,058			1,376			580,434
Net assets acquired								$	79,730		$	8,741		$	88,471

Consideration Paid
Cash														$	22,545
Common stock														65,926
Total consideration paid														$	88,471

The Company has recognized approximately ~~$1.4 million~~$3,293,000, pre-tax, of acquisition costs ~~related to completion~~for the First Clover Leaf acquisition of ~~the acquisition during 2015.~~which $1,953,000 was recorded for 2017. These ~~acquisition~~ costs are included in legal and professional and other expense. ~~The~~Of the $10.4 million difference between the fair value and acquired value of the purchased loans, ~~of $3,377,000~~approximately $8.4 million is being accreted to interest income over the remaining term of the loans. The ~~difference~~differences between ~~the~~ fair value and acquired value of the assumed time deposits of ~~$837,000 is~~$1.99 million, of the assumed FHLB advances of $113,000 and of the assumed subordinated debentures of $(731,000), are being amortized to interest expense over the remaining ~~term~~life of the ~~time deposits.~~liabilities. The core deposit intangible asset, with a fair value of ~~$6,216,000,~~$4.7 million, will be amortized on an accelerated basis over its estimated life of ten 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 Clover Leaf acquisition taken place at the beginning of the period ~~(in~~(dollars in thousands):


	Three months ended		Six months ended		Three months ended		Six months ended
	June 30,				June 30,
	2015				2016
Net interest income	$	16,804	$	32,516	$	21,214	$	42,915
Provision for loan losses	184		548		803		961
Non-interest income	6,338		12,939		7,165		14,422
Non-interest expense	14,161		28,693		18,710		38,012
Income before income taxes	8,797		16,214		8,866		18,364
Income tax expense	3,153		5,866		2,893		6,103
Net income	$	5,644	$	10,348	5,973		12,261
Dividends on preferred shares	550		1,100		—		—
Net income available to common stockholders	$	5,094	$	9,248	$	5,973	$	12,261

Earnings per share
Basic	$	0.71	$	1.30	$	0.51	$	1.08
Diluted	$	0.66	$	1.22	$	0.48	$	0.99

Basic weighted average shares outstanding	7,198,980		7,112,309		11,753,325		11,404,723
Diluted weighted average shares outstanding	8,563,773		8,477,102		12,445,488		12,432,707

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 First Clover Leaf 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.

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

The following discussion and analysis is intended to provide a better understanding of the consolidated financial condition and results of operations of the Company and its subsidiaries as of, and for the three and six-month periods ended June 30, ~~2016~~2017 and ~~2015~~2016. This discussion and analysis should be read in conjunction with the consolidated financial statements, related notes and selected financial data appearing elsewhere in this report.

Forward-Looking Statements

This report may contain certain forward-looking statements, such as discussions of the Company’s pricing and fee trends, credit quality and outlook, liquidity, new business results, expansion plans, anticipated expenses and planned schedules. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of ~~1955.~~1995. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are identified by use of the words “believe,” ”expect,” ”intend,” ”anticipate,” ”estimate,” ”project,” or similar expressions. Actual results could differ materially from the results indicated by these statements because the realization of those results is subject to many risks and uncertainties, including those described in Item 1A-“Risk Factors” and other sections of the Company’s Annual Report on Form 10-K and the Company’s other filings with the SEC, and changes in interest rates, general economic conditions and those in the Company’s market area, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios and the valuation of the investment portfolio, the Company’s success in raising capital and effecting and integrating acquisitions, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area and accounting principles, policies and guidelines. Furthermore, forward-looking statements speak only as of the date they are made. Except as required under the federal securities laws or the rules and regulations of the SEC, we do not undertake any obligation to update or review any forward-looking information, whether as a result of new information, future events or otherwise. Further information concerning the Company and its business, including a discussion of these and additional factors that could materially affect the Company’s financial results, is included in the Company’s ~~2015~~2016 Annual Report on Form 10-K under the headings “Item 1. Business" and “Item 1A. Risk Factors."

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 $~~9,735,000~~14,464,000 and ~~$8,195,000~~$9,735,000 for the six months ended June 30, ~~2016~~2017 and ~~2015~~2016, respectively. Diluted net income per common share available to common stockholders was $~~0.99~~1.16 and $~~0.97~~0.99 for the six months ended June 30, ~~2016~~2017 and ~~2015~~2016.

The following table shows the Company’s annualized performance ratios for the six months ended June 30, ~~2016~~2017 and ~~2015~~2016, compared to the performance ratios for the year ended December 31, ~~2015~~2016:


	Six months ended				Year ended		Six months ended				Year ended
	June 30, 2016		June 30, 2015		December 31, 2015		June 30, 2017		June 30, 2016		December 31, 2016
Return on average assets	0.92	%	1.01	%	0.91	%	1.02	%	0.92	%	0.94	%
Return on average common equity	9.76	%	9.89	%	8.97	%	9.96	%	9.76	%	9.30	%
Average equity to average assets	10.03	%	10.51	%	10.34	%	10.22	%	10.03	%	10.12	%

Total assets were $~~2.12~~2.83 billion at June 30, ~~2016~~2017, compared to $~~2.11~~2.88 billion as of December 31, ~~2015~~2016. From December 31, ~~2015~~2016 to June 30, ~~2016~~2017, cash and interest bearing deposits decreased ~~$62.7~~$102.0 million, net loan balances ~~increased $32.3~~decreased $2.6 million and investment securities increased ~~$8.7~~$62.3 million. Net loan balances were $~~1.30~~1.81 billion at June 30, ~~2016~~2017, compared to $~~1.27~~1.81 billion at December 31, ~~2015~~2016. ~~The increase in loan balances since year-end was primarily due to an increase in commercial real estate loan balances.~~

Net interest margin, defined as net interest income divided by average interest-earning assets, was ~~3.27%~~3.58% for the six months ended June 30, ~~2016~~2017, ~~down~~up from ~~3.40%~~3.27% for the same period in ~~2015~~2016. This ~~decrease~~increase was primarily due to ~~declines~~an increase in ~~rates on interest~~ earning assets ~~during 2016 compared to 2015.~~and net accretion income from the acquisition of First Clover Leaf. Net interest income before the provision for loan losses was $~~32.1~~46.7 million compared to net interest income of $~~26.0~~32.1 million for the same period in ~~2015~~2016. The increase in net interest income was primarily due to growth in average earning assets including loans and investments primarily due to the acquisition of First Clover Leaf.

Total non-interest income of ~~$13.1~~$15.5 million increased ~~$3.8~~$2.4 million or ~~40.35%~~18.0% from ~~$9.3~~$13.1 million for the same period last year. Insurance commissions were ~~$959,000~~$410,000 higher than last year ~~with~~primarily due to growth in senior care policies underwritten through the ~~revenues from~~ Illiana Insurance Agency ~~and contingency income which is generally higher in the first quarter due to timing~~branch of ~~policies underwritten and greater income from carriers based upon claims experience.~~First Mid Insurance. Electronic Services revenues were ~~$937,000~~$272,000 greater than last year and deposit service charges increased by ~~$686,000 with~~$249,000 primarily due to the addition of the ONB branch locations. Revenues from brokerage were $330,000 higher than the first six months of last year, primarily due to an increase in brokerage accounts acquired in the ONB Branch acquisition.First Clover Leaf.

Total non-interest expense of ~~$29.3~~$37.2 million increased ~~$7.3~~$7.8 million or ~~33.0%~~26.8% from ~~$22.0~~$29.3 million for the same period last year. The ~~operating expenses of~~increase is primarily attributable to the ~~ONB acquired branch locations and the Illiana Insurance Agency are included for the first six months of 2016 and $242,000 in acquisition costs for the pending acquisition of~~ First Clover ~~Leaf.~~Leaf acquisition including approximately $2.0 million in merger-related costs. Salaries and benefits expense increased to ~~$15.4~~$20.0 million compared to ~~$12.4~~$15.4 million for the same period last year as full-time equivalent employees increased to ~~520~~590 from ~~410.~~520. Occupancy expenses have also increased to ~~$5.5~~$6.2 million from ~~$3.9~~$5.5 million for the first six months of last year primarily due to the additional ~~12 branch locations. In December 2015, construction was completed on a~~6 new ~~more efficient branch facility in Monticello Illinois. During the first quarter of 2016, the existing branch building in Monticello was donated and $653,000 was included in donation expense.~~locations from First Clover Leaf.

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


	Change in Net Income 2016 versus 2015						Change in Net Income 2017 versus 2016
	Three months ended June 30,			Six months ended June 30,			Three months ended June 30,			Six months ended June 30,
Net interest income	$	2,626		$	6,101		$	7,983		$	14,668
Provision for loan losses	(590		)	(438		)	(1,107		)	(2,716		)
Other income, including securities transactions	1,922			3,767			1,510			2,362
Other expenses	(2,913		)	(7,280		)	(3,812		)	(7,843		)
Income taxes	(272		)	(610		)	(1,303		)	(1,742		)
Increase in net income	$	773		$	1,540		$	3,271		$	4,729

Credit quality is an area of importance to the Company. Total nonperforming loans were $17.1 million at June 30, 2017, compared to $4.6 million at June 30, 2016~~, compared to $3.1~~ and $18.2 million at ~~June 30, 2015~~ ~~and $4.0 million at~~ December 31, ~~2015~~.2016. See the discussion under the heading “Loan Quality and Allowance for Loan Losses” for a detailed explanation of these balances. Repossessed asset balances totaled $4.4 million at June 30, 2017 compared to $482,000 at June 30, 2016 ~~compared to $282,000 on~~ ~~June 30, 2015~~ and ~~$478,000 on~~ $2 million at December 31, ~~2015~~.2016. The Company’s provision for loan losses for the six months ended June 30, 2017 and 2016 was $3,562,000 and ~~2015~~ ~~was~~ $846,000, ~~and $408,000,~~ respectively. Total loans past due 30 days or more were ~~0.28%~~0.48% of loans at June 30, 2017 compared to 0.28% at June 30, 2016, ~~compared to 0.21% at~~ ~~June 30, 2015~~, and ~~0.27%~~0.45% of loans at December 31, ~~2015~~.2016. At June 30, ~~2016~~,2017, the composition of the loan portfolio remained similar to the same period last year. Loans secured by both commercial and residential real estate comprised approximately ~~66.2%~~66.1% of the loan portfolio as of June 30, ~~2016~~2017 and ~~66.4%~~66.6% as of December 31, ~~2015~~.2016.

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, ~~2016~~2017 and ~~2015~~2016 and December 31, ~~2015~~2016 was ~~13.09%~~11.98%, ~~17.13%~~13.09% and ~~13.23%~~11.99%, respectively. The Company’s total capital to risk weighted assets ratio calculated under the regulatory risk-based capital requirements at June 30, 2017 and 2016 and ~~2015~~ ~~and~~ December 31, ~~2015~~2016 was ~~14.11%~~12.81%, ~~18.31%~~14.11% and ~~14.25%~~12.79%, respectively. The primary reason for the decrease in these ratios from June 30, 2016 was ~~completion of~~ the First Clover Leaf acquisition ~~of twelve ONB Branches~~ which increased risk-weighted assets ~~by approximately $227 million~~ offset by ~~completion of a private placement capital raise completed during the second quarter of 2015 which resulted in an increase in common stockholder's equity~~stock issued of approximately ~~$29.3 million.~~$65.9 million

and lower preferred dividends due to the conversion of Series C Preferred Stock.

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, ~~2016~~2017 and ~~2015~~2016 were ~~$332~~$457 million and ~~$269~~$332 million, respectively. The increase in ~~2016~~2017 was primarily due to additional outstanding commitments resulting from the acquisition of ~~the twelve ONB Branches.~~First Clover Leaf Bank.

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

On February 27, 2009, the FDIC adopted a final rule setting initial base assessment rates beginning April 1, 2009, at 12 to 45 basis points and, due to extraordinary circumstances, extended the period of the restoration plan to increase the deposit insurance fund to seven years. Also on February 27, 2009, the FDIC issued final rules on changes to the risk-based assessment system which imposes rates based on an institution’s risk to the deposit insurance fund. The new rates increased the range of annual risk based assessment rates from 5 to 7 basis points to 7 to 24 basis points. The final rules both increase base assessment rates and incorporate additional assessments for excess reliance on brokered deposits and FHLB advances. This new assessment took effect April 1, 2009. The Company expensed ~~$493,000~~$407,000 and ~~$362,000~~$493,000 for this assessment during the first six months of ~~2016~~2017 and ~~2015~~2016, respectively.

In addition to its insurance assessment, 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 ~~$54,000~~$62,000 and ~~$43,000~~$54,000 during the first six months of ~~2016~~2017 and ~~2015~~2016~~, respectively,~~ for this ~~assessment.~~assessment, respectively.

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

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

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

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

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

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 financial statements. The significant accounting policies of the Company are described in the footnotes to the consolidated financial statements included in the Company’s ~~2015~~2016 Annual Report on Form 10-K. Certain accounting policies involve significant judgments and assumptions by management that have a material impact on the carrying value of certain assets and liabilities; management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and assumptions, which could have a material impact on the carrying values of assets and liabilities and the results of operations of the Company.

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.

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

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

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

Impairment of Goodwill and Intangible Assets. Core deposit and customer relationships, which are intangible assets with a finite life, are recorded on the Company’s balance sheets. These intangible assets were capitalized as a result of past acquisitions and are being amortized over their estimated useful lives of up to 15 years. Core deposit intangible assets, with finite lives will be tested for impairment when changes in events or circumstances indicate that its carrying amount may not be recoverable. Core deposit intangible assets were tested for impairment as of September 30, ~~2015~~2016 as part of the goodwill impairment test and no impairment was identified.

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

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

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

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

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

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

At the end of each quarter, the Company assesses the valuation hierarchy for each asset or liability measured. From time to time, assets or liabilities may be transferred within hierarchy levels due to changes in availability of observable market inputs to measure fair value at the measurement date. Transfers into or out of hierarchy levels are based upon the fair value at the beginning of the reporting period. A more detailed description of the fair values measured at each level of the fair value hierarchy can be found in Note 67 – 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.

The Company’s average balances, interest income and expense and rates earned or paid for major balance sheet categories are set forth for the three and six months ended

June 30, ~~2016~~2017 and ~~2015~~2016 in the following table (dollars in thousands):



	Three months ended June 30, 2016							Three months ended June 30, 2015							Three months ended June 30, 2017							Three months ended June 30, 2016
	Average Balance			Interest		Average Rate		Average Balance			Interest		Average Rate		Average Balance			Interest		Average Rate		Average Balance			Interest		Average Rate
ASSETS
Interest-bearing deposits with other financial institutions	$	14,945		$	18	0.48	%	$	25,922		$	18	0.28	%	$	20,573		$	48	0.95	%	$	14,945		$	18	0.48	%
Federal funds sold	491			—		—	%	493			—		—	%	490			—		—	%	491			—		—	%
Certificates of deposit investments	33,419			83		1.00	%	—			—		—	%	1,685			7		1.68	%	33,419			83		1.00	%
Investment securities
Taxable	518,795			2,310		1.78	%	381,091			1,782		1.87	%	601,906			3,147		2.09	%	518,795			2,310		1.78	%
Tax-exempt (1)	107,631			862		3.20	%	80,888			648		3.20	%	175,721			1,219		2.77	%	107,631			862		3.20	%
Loans (2)	1,292,000			13,610		4.24	%	1,056,517			11,724		4.45	%	1,815,417			21,025		4.70	%	1,292,000			13,610		4.24	%
Total earning assets	1,967,281			16,883		3.45	%	1,544,911			14,172		3.68	%	2,615,792			25,446		3.95	%	1,967,281			16,883		3.45	%
Cash and due from banks	44,300							32,157							54,117							44,300
Premises and equipment	29,769							27,182							39,254							29,769
Other assets	89,152							40,638							142,049							89,152
Allowance for loan losses	(15,012		)					(14,006		)					(18,169		)					(15,012		)
Total assets	$	2,115,490						$	1,630,882						$	2,833,043						$	2,115,490
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits
Demand deposits	$	797,197		$	195	0.10	%	$	574,255		$	165	0.12	%	$	1,149,578		$	420	0.15	%	$	797,197		$	195	0.10	%
Savings deposits	337,247			110		0.13	%	287,000			98		0.14	%	372,732			120		0.13	%	337,247			110		0.13	%
Time deposits	236,421			270		0.46	%	194,356			250		0.52	%	338,705			393		0.47	%	236,421			270		0.46	%
Securities sold under agreements to repurchase	130,226			21		0.06	%	118,669			15		0.05	%	154,192			46		0.12	%	130,226			21		0.06	%
FHLB advances	25,714			165		2.58	%	25,000			157		2.52	%	45,724			168		1.49	%	25,714			165		2.58	%
Fed Funds Purchased	1,239			3		0.97	%	234			—		—	%	3,291			12		1.36	%	1,239			3		0.97	%
Junior subordinated debt	20,620			149		2.91	%	20,620			130		2.53	%	23,945			227		3.86	%	20,620			149		2.91	%
Other debt	11			—		—	%	1,802			13		—	%	13,115			107		3.3	%	11			—		—	%
Total interest-bearing liabilities	1,548,675			913		0.24	%	1,221,936			828		0.27	%	2,101,282			1,493		0.29	%	1,548,675			913		0.24	%
Non interest-bearing demand deposits	345,018							226,409							428,279							345,018
Other liabilities	8,226							7,816							8,289							8,226
Stockholders' equity	213,571							174,721							295,193							213,571
Total liabilities & equity	$	2,115,490						$	1,630,882						$	2,833,043						$	2,115,490
Net interest income				$	15,970						$	13,344						$	23,953						$	15,970
Net interest spread						3.21	%						3.41	%						3.66	%						3.21	%
Impact of non-interest bearing funds						0.05	%						0.05	%						0.05	%						0.05	%
Net yield on interest- earning assets						3.26	%						3.46	%						3.71	%						3.26	%

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


	Six months ended June 30, 2016							Six months ended June 30, 2015							Six months ended June 30, 2017							Six months ended June 30, 2016
	Average Balance			Interest		Average Rate		Average Balance			Interest		Average Rate		Average Balance			Interest		Average Rate		Average Balance			Interest		Average Rate
Assets
Interest-bearing deposits with other financial institutions	$	41,212		$	110	0.54	%	$	34,881		$	44	0.25	%	$	39,824		$	177	0.90	%	$	41,212		$	110	0.54	%
Federal funds sold	491			1		0.20	%	493			—		0.10	%	17,701			61		0.70	%	491			1		0.20	%
Certificates of deposit investments	32,013			156		0.98	%	—			—		—	%	4,976			32		1.30	%	32,013			156		0.98	%
Investment securities:
Taxable	508,873			4,677		1.84	%	370,839			3,517		1.90	%	579,657			6,015		2.07	%	508,873			4,677		1.84	%
Tax-exempt (1)	106,942			1,716		3.21	%	79,721			1,274		3.20	%	172,360			2,391		2.81	%	106,942			1,716		3.21	%
Loans (2)	1,280,356			27,202		4.27	%	1,050,177			22,776		4.37	%	1,809,942			40,952		4.56	%	1,280,356			27,202		4.27	%
Total earning assets	1,969,887			33,862		3.45	%	1,536,111			27,611		3.62	%	2,624,460			49,628		3.81	%	1,969,887			33,862		3.45	%
Cash and due from banks	45,422							35,374							54,801							45,422
Premises and equipment	30,381							27,221							39,739							30,381
Other assets	77,820							41,327							141,389							77,820
Allowance for loan losses	(14,855		)					(13,955		)					(17,686		)					(14,855		)
Total assets	$	2,108,655						$	1,626,078						$	2,842,703						$	2,108,655
Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity														Liabilities and Stockholders' Equity
Interest-bearing deposits
Demand deposits	$	801,701		$	396	0.10	%	$	570,116		$	328	0.12	%	$	1,128,273		$	789	0.14	%	$	801,701		$	396	0.10	%
Savings deposits	333,968			216		0.13	%	284,308			193		0.14	%	369,180			234		0.13	%	333,968			216		0.13	%
Time deposits	239,099			542		0.45	%	203,137			524		0.52	%	367,484			789		0.43	%	239,099			542		0.45	%
Securities sold under agreements to repurchase	125,782			39		0.06	%	117,509			29		0.05	%	157,413			86		0.11	%	125,782			39		0.06	%
FHLB advances	22,857			315		2.77	%	24,834			310		2.52	%	42,922			319		1.50	%	22,857			315		2.77	%
Fed Funds Purchased	619			2		—	%	117			—		—	%	1,725			12		1.33	%	619			2		—	%
Junior subordinated debt	20,620			294		2.87	%	20,620			258		2.53	%	23,935			444		3.75	%	20,620			294		2.87	%
Other debt	60			1		1.71	%	950			13		2.66	%	14,907			230		3.12	%	60			1		1.71	%
Total interest-bearing liabilities	1,544,706			1,805		0.23	%	1,221,591			1,655		0.27	%	2,105,839			2,903		0.28	%	1,544,706			1,805		0.23	%
Non interest-bearing demand deposits	344,100							225,492							438,839							344,100
Other liabilities	8,305							8,057							7,610							8,305
Stockholders' equity	211,544							170,938							290,415							211,544
Total liabilities & equity	$	2,108,655						$	1,626,078						$	2,842,703						$	2,108,655
Net interest income				$	32,057						$	25,956						$	46,725						$	32,057
Net interest spread						3.22	%						3.35	%						3.53	%						3.22	%
Impact of non-interest bearing funds						0.05	%						0.05	%						0.05	%						0.05	%
Net yield on interest- earning assets						3.27	%						3.40	%						3.58	%						3.27	%

(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 ended June 30, ~~2016~~2017, compared to the same periods in ~~2015~~2016 (in thousands):


	Three months ended June 30, 2016 compared to 2015 Increase / (Decrease)									Six months ended June 30, 2016 compared to 2015 Increase / (Decrease)									Three months ended June 30, 2017 compared to 2016 Increase / (Decrease)									Six months ended June 30, 2017 compared to 2016 Increase / (Decrease)
	Total Change			Volume (1)			Rate (1)			Total Change			Volume (1)			Rate (1)			Total Change			Volume (1)			Rate (1)			Total Change			Volume (1)			Rate (1)
Earning Assets:
Interest-bearing deposits	$	—		$	(39	)	$	39		$	66		$	9		$	57		$	30		$	8		$	22		$	67		$	(10	)	$	77
Federal funds sold	—			(1		)	1			1			—			1			—			—			—			60			57			3
Certificates of deposit investments	83			44			39			156			156			—			(76		)	(309		)	233			(124		)	(237		)	113
Investment securities:
Taxable	528			1,071			(543		)	1,160			1,480			(320		)	837			401			436			1,338			715			623
Tax-exempt (2)	214			214			—			442			437			5			357			485			(128		)	675			910			(235		)
Loans (3)	1,886			5,219			(3,333		)	4,426			5,909			(1,483		)	7,415			5,849			1,566			13,750			11,811			1,939
Total interest income	2,711			6,508			(3,797		)	6,251			7,991			(1,740		)	8,563			6,434			2,129			15,766			13,246			2,520
Interest-Bearing Liabilities:
Interest-bearing deposits
Demand deposits	30			182			(152		)	68			210			(142		)	225			105			120			393			198			195
Savings deposits	12			49			(37		)	23			56			(33		)	10			10			—			18			18			—
Time deposits	20			166			(146		)	18			159			(141		)	123			117			6			247			349			(102		)
Securities sold under agreements to repurchase	6			2			4			10			3			7			25			4			21			47			11			36
FHLB advances	8			4			4			5			(53		)	58			3			365			(362		)	4			384			(380		)
Federal Funds Purchased																			9			8			1			10			11			(1		)
Junior subordinated debt	19			—			19			36			—			36			78			26			52			150			52			98
Other debt	(13		)	(13		)	—			(12		)	(9		)	(3		)	107			107			—			229			228			1
Total interest expense	85			390			(305		)	150			368			(218		)	580			742			(162		)	1,098			1,251			(153		)
Net interest income	$	2,626		$	6,118		$	(3,492	)	$	6,101		$	7,623		$	(1,522	)	$	7,983		$	5,692		$	2,291		$	14,668		$	11,995		$	2,673

(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.

Net interest income increased ~~$6.1~~$14.7 million, or ~~23.5%~~45.8%, to ~~$32.1~~$46.7 million for the six months ended June 30, ~~2016~~2017, from ~~$26.0~~$32.1 million for the same period in ~~2015~~2016. Net interest income increased due to the growth in average earning assets including loans and investments primarily due to the acquisition of First Clover Leaf. The net interest margin increased primarily due to the growth in ~~average~~ earning ~~assets. The net interest margin decreased primarily due~~assets, an increase in investment yields and accretion income related to the ~~decline in earning asset yields and decline in investment yields.~~acquisition of First Clover Leaf.

For the six months ended June 30, ~~2016~~2017, average earning assets increased by ~~$433.8~~$654.6 million, or ~~28.2%~~33.2%, and average interest-bearing liabilities increased ~~$323.1~~$561.1 million or ~~26.5%~~36.3%, compared with average balances for the same period in ~~2015~~2016.

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

Average interest-bearing deposits held by the Company ~~increased $6.3~~decreased $1.4 million or ~~18.2%~~3.4%.

Average federal funds sold ~~decreased $2,000~~increased $17.2 million or ~~0.4%~~3,505.1%.

Average certificates of deposits investments ~~increased~~decreased $~~32.0~~27.0 million or ~~100.0%~~84.5%

Average loans increased by ~~$230.2~~$529.6 million or ~~21.9%~~41.4%.

Average securities increased by ~~$165.3~~$136.2 million or ~~36.7%~~22.1%.

Average deposits increased by ~~$317.2~~$490.2 million or ~~30.0%~~35.7%.

Average securities sold under agreements to repurchase increased by ~~$8.3~~$31.6 million or ~~7.0%~~25.1%.

Average borrowings and other debt ~~decreased~~increased by ~~$2.4~~$39.3 million or ~~5.1%~~89.1%.

Net interest margin ~~decreased~~increased to 3.58% for the first six months of 2017 from 3.27% for the first six months of ~~2016 from 3.40% for the first~~ ~~six months~~ of ~~2015~~2016.

To compare the tax-exempt yields on interest-earning assets to taxable yields, the Company also computes non-GAAP net interest income on a tax equivalent basis (TE) where the interest earned on tax-exempt loans and securities is adjusted to an amount comparable to interest subject to normal income taxes assuming a federal tax rate of 35% (referred to as the tax equivalent adjustment). The year-to-date net yield on interest-earning assets (TE) was ~~3.37%~~3.72% and ~~3.50%~~3.37% for the first six months of ~~2016~~2017 and ~~2015~~2016, respectively. The TE adjustments to net interest income for the six months ended June 30, ~~2016~~2017 and ~~2015~~2016 were ~~$1,030,000~~$1,739,000 and ~~$756,000,~~$1,030,000, respectively.

Provision for Loan Losses

The provision for loan losses for the six months ended June 30, ~~2016~~2017 and ~~2015~~2016 was ~~$846,000~~$3,562,000 and ~~$408,000,~~$846,000, respectively. The increase in provision expense was primarily due to ~~a higher level of net charge-offs and~~ an increase in ~~loan balances.~~non-performing loans and net charge-offs. Net charge-offs were ~~$258,000~~$2,106,000 for the six months ended June 30, ~~2016~~2017 compared to ~~$159,000 during the same period in~~ ~~2015~~.net charge offs of $258,000 for June 30, 2016. Nonperforming loans were ~~$4.6~~$17.1 million and ~~$3.1~~$4.6 million as of June 30, ~~2016~~2017 and ~~2015,~~2016, respectively. For information on loan loss experience and nonperforming loans, see discussion under the “Nonperforming Loans” and “Loan Quality and Allowance for Loan Losses” sections below.

Other Income

An important source of the Company’s revenue is other income. The following table sets forth the major components of other income for the three and six-months ended June 30, ~~2016~~2017 and ~~2015~~2016 (in thousands):


	Three months ended June 30,							Six months ended June 30,							Three months ended June 30,							Six months ended June 30,
	2016		2015		$ Change			2016		2015		$ Change			2017		2016		$ Change			2017		2016		$ Change
Trust revenues	$	794	$	860	$	(66	)	$	1,775	$	1,780	$	(5	)	$	841	$	794	$	47		$	1,771	$	1,775	$	(4	)
Brokerage commissions	466		306		160			914		584		330			509		466		43			1,014		914		100
Insurance commissions	735		474		261			2,068		1,109		959			853		735		118			2,478		2,068		410
Service charges	1,644		1,278		366			3,153		2,467		686			1,690		1,644		46			3,402		3,153		249
Security gains, net	404		1		403			664		230		434			335		404		(69		)	335		664		(329		)
Mortgage banking revenue, net	238		210		28			333		377		(44		)	335		238		97			528		333		195
ATM / debit card revenue	1,472		1,018		454			2,961		2,024		937			1,665		1,472		193			3,233		2,961		272
Bank Owned Life Insurance	174		—		174			183		—		183			282		174		108			563		183		380
Other	532		390		142			1,052		765		287			1,459		532		927			2,141		1,052		1,089
Total other income	$	6,459	$	4,537	$	1,922		$	13,103	$	9,336	$	3,767		$	7,969	$	6,459	$	1,510		$	15,465	$	13,103	$	2,362

Following are explanations of the changes in these other income categories for the three months ended June 30, ~~2016~~2017 compared to the same period in ~~2015:~~2016:

Trust revenues ~~decreased $66,000~~increased $47,000 or ~~7.7%~~5.9% to ~~$794,000~~$841,000 from ~~$860,000~~$794,000 due to ~~a decrease~~an increase in revenue from defined contribution and other retirement accounts. Trust assets, at market value, were $881.5 million at June 30, 2017 compared to $810.9 million at June 30, ~~2016 compared to $765.2 million at June 30, 2015.~~2016.

Revenues from brokerage increased ~~$160,000~~$43,000 or ~~52.3%~~9.2% to ~~$466,000~~$509,000 from ~~$306,000~~$466,000 primarily due to an increase in the number of brokerage accounts from ~~the ONB Branch acquisition.~~new business development efforts.

Insurance commissions increased ~~$261,000~~$118,000 or ~~55.1%~~16.1% to ~~$735,000~~$853,000 from ~~$474,000~~$735,000 primarily due to ~~revenues from~~growth in senior care policies underwritten through the Illiana Insurance Agency ~~in 2016 compared to 2015.~~branch of First Mid Insurance.

Fees from service charges increased ~~$366,000~~$46,000 or ~~28.6%~~2.8% to ~~$1,644,000~~$1,690,000 from ~~$1,278,000 for the three months ended June 30, 2016 and 2015~~$1,644,000 primarily due to ~~an increase~~ the ~~additional income from the ONB branches acquired in the third quarter~~acquisition of ~~2015.~~First Clover Leaf.

The sale of securities during the three months ended June 30, ~~2016~~2017 resulted in net securities gains of ~~$404,000~~$335,000 compared to ~~$1,000~~$404,000 during the three months ended June 30, ~~2015.~~2016.

Mortgage banking income increased ~~$28,000~~$97,000 or ~~13.3%~~40.8% to ~~$238,000~~$335,000 from ~~$210,000.~~$238,000. Loans sold balances were as follows:

$17.7 million (representing 138 loans) for the three months ended June 30, 2017

$19.5 million (representing 164 loans) for the three months ended of June 30, 2016

~~$15.4 million (representing 118 loans) for the three months months ended of June 30, 2015~~

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

Revenue from ATMs and debit cards increased ~~$454,000~~$193,000 or ~~44.6%~~13.1% to ~~$1,472,000~~$1,665,000 from ~~$1,018,000~~$1,472,000 due to an increase in electronic transactions primarily from ~~the ONB Branches~~First Clover Leaf acquired in the third quarter of ~~2015 and incentives received from VISA.~~2016.

Bank owned life insurance income increased~~$174,000~~ $108,000 or ~~100%~~62.1%. The Company invested $25 million in bank owned life insurance during the first quarter of 2016 and acquired $15.6 million in bank owned life insurance in the First Clover Leaf acquisition during the third quarter of 2016.

Other income increased ~~$142,000~~$927,000 or ~~36.4%~~174.2% to ~~$532,000~~$1,459,000 from ~~$390,000~~$532,000 primarily due to income from ~~the ONB branches acquired during the third quarter~~tax refunds resulting from overpayment of ~~2015.~~taxes in 2016 by First Clover Leaf Financial.

Following are explanations of the changes in these other income categories for the six months ended June 30, ~~2016~~2017 compared to the same period in ~~2015~~2016:

Trust revenues decreased ~~$5,000~~$4,000 or ~~0.3%~~0.2% to ~~$1,775,000~~$1,771,000 from ~~$1,780,000~~$1,775,000 due to ~~an decrease in revenue from defined contribution~~lower personal trust and ~~other retirement accounts.~~agency fees. Trust assets, at market value, were $881.5 million at June 30, 2017 compared to $810.9 million at June 30, ~~2016 compared to $765.2 million at June 30, 2015.~~2016.

Revenues from brokerage increased ~~$330,000~~$100,000 or ~~56.5%~~10.9% to ~~$914,000~~$1,014,000 from ~~$584,000~~$914,000 primarily due to an increase in the number of brokerage accounts from ~~the ONB Branch acquisition.~~new business development efforts.

Insurance commissions increased ~~$959,000~~$410,000 or ~~86.5%~~19.8% to ~~$2,068,000~~$2,478,000 from ~~$1,109,000~~$2,068,000 primarily due to ~~revenues from~~growth in senior care policies underwritten through the Illiana Insurance Agency ~~and greater income from carriers based upon claims experience in 2016 compared to 2015.~~branch of First Mid Insurance.

Fees from service charges increased ~~$686,000~~$249,000 or ~~27.8%~~7.9% to ~~$3,153,000~~$3,402,000 from ~~$2,467,000 for the six months ended~~ ~~June 30, 2016 and 2015~~$3,153,000 primarily due to ~~an increase~~ the ~~additional income from the ONB branches acquired in the third quarter~~acquisition of ~~2015.~~

First Clover Leaf.

The sale of securities during the six months ended June 30, ~~2016~~2017 resulted in net securities gains of ~~$664,000~~$335,000 compared to ~~$230,000~~$664,000 during the six months ended June 30, ~~2015~~2016.

Mortgage banking income ~~decreased $44,000~~increased $195,000 or ~~11.7%~~58.6% to ~~$333,000~~$528,000 from ~~$377,000.~~$333,000. Loans sold balances were as follows:

$31.5 million (representing 241 loans) for the six months ended June 30, 2017

$28.7 million (representing 237 loans) for the six months ended of June 30, 2016

~~$29.0 million (representing 225 loans) for the six months months ended of~~ ~~June 30, 2015~~

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

Revenue from ATMs and debit cards increased ~~$937,000~~$272,000 or ~~46.3%~~9.2% to ~~$2,961,000~~$3,233,000 from ~~$2,024,000~~$2,961,000 due to an increase in electronic transactions primarily from ~~the ONB Branches~~First Clover Leaf acquired in the third quarter of ~~2015~~2016 and incentives received from VISA.

Bank owned life insurance income increased ~~$183,000~~$380,000 or ~~100%~~207.7%. The Company invested $25 million in bank owned life insurance during the first quarter of 2016 and acquired $15.6 million in bank owned life insurance in the First Clover Leaf acquisition during the third quarter of 2016.

Other income increased ~~$287,000~~$1,089,000 or ~~37.5%~~103.5% to ~~$1,052,000~~$2,141,000 from ~~$765,000~~$1,052,000 primarily due to income from ~~the ONB branches~~First Clover Leaf acquired during the third quarter of ~~2015.~~2016 and income tax refunds resulting from overpayment of taxes in 2016 by First Clover Leaf Financial.

Other Expense

The major categories of other expense include salaries and employee benefits, occupancy and equipment expenses and other operating expenses associated with day-to-day operations. The following table sets forth the major components of other expense for the three and six-months ended June 30, ~~2016~~2017 and ~~2015~~2016 (in thousands):


	Three months ended June 30,							Six months ended June 30,								Three months ended June 30,							Six months ended June 30,
	2016		2015		$ Change			2016			2015		$ Change			2017		2016		$ Change			2017		2016			$ Change
Salaries and employee benefits	$	7,602	$	6,297	$	1,305		$	15,449		$	12,353	$	3,096		$	10,102	$	7,602	$	2,500		$	20,037	$	15,449		$	4,588
Net occupancy and equipment expense	2,646		1,926		720			5,525			3,905		1,620			3,116		2,646		470			6,249		5,525			724
Net other real estate owned expense (income)	10		9		1			(9		)	1		(10		)	127		10		117			145		(9		)	154
FDIC insurance	281		202		79			547			405		142			290		281		9			469		547			(78		)
Amortization of intangible assets	402		156		246			857			311		546			559		402		157			1,106		857			249
Stationery and supplies	190		143		47			391			295		96			186		190		(4		)	371		391			(20		)
Legal and professional	917		600		317			1,701			1,182		519			894		917		(23		)	1,725		1,701			24
Marketing and donations	239		277		(38		)	1,201			494		707			277		239		38			571		1,201			(630		)
Other operating expenses	1,856		1,620		236			3,652			3,088		564			2,404		1,856		548			6,484		3,652			2,832
Total other expense	$	14,143	$	11,230	$	2,913		$	29,314		$	22,034	$	7,280		$	17,955	$	14,143	$	3,812		$	37,157	$	29,314		$	7,843

Following are explanations for the changes in these other expense categories for the three months ended June 30, ~~2016~~2017 compared to the same period in ~~2015:~~2016:

Salaries and employee benefits, the largest component of other expense, increased ~~$1,305,000~~$2,500,000 or 32.9% to ~~$7,602,000~~$10,102,000 from ~~$6,297,000.~~$7,602,000. The increase is primarily due to the addition of 8688 employees ~~with~~in the acquisition of the ~~ONB branches, the addition of 12 employees with the Illiana Insurance Agency,~~First Clover Leaf and merit increases in ~~2016~~2017 for continuing employees. There were ~~520~~590 and ~~410~~520 full-time equivalent employees at June 30, ~~2016~~2017 and ~~2015,~~2016, respectively.

Occupancy and equipment expense increased ~~$720,000~~$470,000 or ~~37.4%~~17.8% to ~~$2,646,000~~$3,116,000 from ~~$1,926,000.~~$2,646,000. The increase was primarily due to increases in rent and depreciation expenses related to the acquisition of ~~twelve ONB Branches and Illiana Insurance Agency~~six First Clover Leaf locations during the third quarter of ~~2015.~~

2016.

Net other real estate owned expense increased ~~$1,000~~$117,000 or ~~11.1%~~1,170.0% to ~~$10,000~~$127,000 from ~~$9,000.~~$10,000. The increase in 2017 was primarily due real estate taxes and maintenance expenses on properties owned in 2017.

Expense for amortization of intangible assets increased ~~$246,000~~$157,000 or ~~157.7%~~39.1% to ~~$402,000~~$559,000 from ~~$156,000~~$402,000 for the ~~three~~six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, respectively. The increase in ~~intangible amortization expense in 2016~~2017 was due to the ~~acquisition of the ONB branches and Illiana Insurance Agency.~~additional amortization from First Clover Leaf.

Other operating expenses increased ~~$236,000~~$548,000 or ~~14.6%~~29.5% to $2,404,000 in 2017 from $1,856,000 in 2016 ~~from $1,620,000 in 2015~~ primarily due to the additional ~~ONB branches~~expenses from the First Clover Leaf locations and costs ~~related to~~associated with the ~~pending acquisition~~merger of First Clover ~~Leaf.~~Leaf Bank into First Mid Bank during the first quarter of 2017.

On a net basis, all other categories of operating expenses increased ~~$326,000~~$11,000 or ~~32.0%~~0.8% to $1,357,000 in 2017 from $1,346,000 in ~~2016 from $1,020,000 in 2015.~~2016. The increase from 2016 to 2017 was primarily due to ~~the donation of a building located in Monticello, Illinois with a book value of $653,000 and increases~~an increase in marketing and ~~other professional fees including costs related to the pending acquisition of First Clover Leaf.~~donation expenses.

Following are explanations for the changes in these other expense categories for the six months ended June 30, ~~2016~~2017 compared to the same period in ~~2015~~2016:

Salaries and employee benefits, the largest component of other expense, increased ~~$3,096,000~~$4,588,000 to ~~$15,449,000~~$20,037,000 from ~~$12,353,000.~~$15,449,000. The increase is primarily due to the addition of 8688 employees ~~with~~in the acquisition of the ~~ONB branches, the addition of 12 employees with the Illiana Insurance Agency,~~First Clover Leaf and merit increases in ~~2016~~2017 for continuing employees. There were ~~520~~590 and ~~410~~520 full-time equivalent employees at June 30, ~~2016~~2017 and ~~2015,~~2016, respectively.

Occupancy and equipment expense increased ~~$1,620,000~~$724,000 or ~~41.5%~~13.1% to ~~$5,525,000~~$6,249,000 from ~~$3,905,000.~~$5,525,000. The increase was primarily due to increases in rent and depreciation expenses related to the acquisition of ~~twelve ONB Branches and Illiana Insurance Agency~~six First Clover Leaf locations during the third quarter of ~~2015.~~

2016.

Net other real estate owned expense ~~decreased $10,000~~increased $154,000 or ~~1,000.0%~~1,711.1% to ~~$(9,000)~~$145,000 from ~~$1,000.~~$(9,000). The ~~decrease~~increase in ~~2016~~2017 was primarily due to ~~less~~real estate taxes and maintenance expenses on properties owned and losses on properties sold during ~~2016 compared to properties sold in~~ ~~2015~~.

2017.

Expense for amortization of intangible assets increased ~~$546,000~~$249,000 or ~~175.6%~~29.1% to ~~$857,000~~$1,106,000 from ~~$311,000~~$857,000 for the six months ended June 30, ~~2016~~2017 and ~~2015~~2016, respectively. The increase in ~~intangible amortization expense in 2016~~2017 was due to the ~~acquisition of the ONB branches and Illiana Insurance Agency.~~additional amortization from First Clover Leaf.

Other operating expenses increased ~~$564,000~~$2,832,000 or ~~18.3%~~77.5% to $6,484,000 in 2017 from $3,652,000 in ~~2016 from $3,088,000 in~~ ~~2015~~2016 primarily due to the additional ~~ONB branches~~expenses from the First Clover Leaf locations and costs ~~related to~~associated with the ~~pending acquisition~~merger of First Clover ~~Leaf.~~Leaf Bank into First Mid Bank during the first quarter of 2017.

On a net basis, all other categories of operating expenses ~~increased $1,322,000~~decreased $626,000 or ~~67.1%~~19.0% to $2,667,000 in 2017 from $3,293,000 in ~~2016 from $1,971,000 in~~ ~~2015~~2016. The ~~increase~~decrease from 2016 to 2017 was primarily due to the donation of a building located in Monticello, Illinois with a book value of $653,000, ~~and increases in marketing and other professional fees including costs related to the pending acquisition of First Clover Leaf.~~during 2016.

Income Taxes

Total income tax expense amounted to $7.0 million (32.6% effective tax rate) for the six months ended June 30, 2017, compared to $5.3 million (35.1% effective tax rate) for the ~~six months endedJune 30, 2016, compared to $4.7 million (36.2% effective tax rate) for the~~ same period in ~~2015~~.2016. The decline in effective tax rate for the six months ended June 30, ~~2016~~2017 compared to the same period in ~~2015~~2016 is primarily due to an increase in tax-exempt municipal investments and bank owned life insurance.

The Company files U.S. federal and state of Illinois income tax returns. The Company is no longer subject to U.S. federal or state income tax examinations by tax authorities for years before ~~2013.~~2014.

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, ~~2016~~2017 and December 31, ~~2015~~2016 (dollars in thousands):


	June 30, 2016				December 31, 2015				June 30, 2017				December 31, 2016
	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	$	162,226	1.71	%	$	175,576	1.70	%	$	217,295	1.89	%	$	213,050	1.83	%
Obligations of states and political subdivisions	107,874		3.20	%	107,164		3.22	%	172,446		2.83	%	164,163		2.80	%
Mortgage-backed securities: GSE residential	326,436		2.29	%	312,132		2.52	%	354,993		2.54	%	318,829		2.57	%
Trust preferred securities	3,094		1.55	%	3,130		1.41	%	2,974		2.15	%	3,050		1.86	%
Other securities	4,035		1.60	%	4,035		1.38	%	4,034		2.42	%	4,034		2.14	%
Total securities	$	603,665	2.29	%	$	602,037	2.39	%	$	751,742	2.47	%	$	703,126	2.39	%

At June 30, ~~2016~~2017, the Company’s investment portfolio increased by ~~$1.6~~$48.6 million from December 31, ~~2015~~2016 primarily due to ~~purchases~~securities added in the acquisition of ~~mortgage-backed securities.~~First Clover Leaf, net of declines due to securities that matured or declined and were not replaced. 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, ~~2016~~2017 for certain investment securities (in thousands):


	Amortized Cost		Estimated Fair Value			Average Credit Rating of Fair Value at June 30, 2016 (1)																	Amortized Cost				Estimated Fair Value			Average Credit Rating of Fair Value at June 30, 2017 (1)
	Amortized Cost				AAA			AA +/-			A +/-			BBB +/-			< BBB -			Not rated						AAA				AA +/-			A +/-			BBB +/-			< BBB -			Not rated
Available-for-sale:			Estimated Fair Value																								Estimated Fair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	50,065	$	50,210		$	—		$	50,210		$	—		$	—		$	—		$	—	Amortized Cost	$	143,014			$	142,573		$	—		$	142,573		$	—		$	—		$	—		$	—
Obligations of state and political subdivisions	107,874		113,041			4,953			82,283			24,974			—			—			831		172,446				176,012			13,196			132,835			28,713			—			—			1,268
Mortgage-backed securities (2)	326,436		331,504			—			—			—			—			—			331,504		354,993				356,944			—			—			—			—			—			356,944
Trust preferred securities	3,094		1,746			—			—			—			—			1,746			—		2,974				2,424			—			—			—			—			2,424			—
Other securities	4,035		4,076			—			—			2,014			1,979			—			83		4,034				4,187			—			—			2,030			2,006			—			151
Total available-for-sale	$	491,504	$	500,577		$	4,953		$	132,493		$	26,988		$	1,979		$	1,746		$	332,418	$	677,461			$	682,140		$	13,196		$	275,408		$	30,743		$	2,006		$	2,424		$	358,363
Held-to-maturity:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	112,161	$	113,112		$	—		$	113,112		$	—		$	—		$	—		$	—	$	74,281			$	74,224		$	—		$	74,224		$	—		$	—		$	—		$	—

(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.

The trust preferred securities is one trust preferred pooled security issued by FTN Financial Securities Corp. (“FTN”). The following table contains information regarding the trust preferred security as of June 30, ~~2016~~2017:


Deal name	PreTSL XXVIII			PreTSL XXVIII
Class	Mezzanine C-1			Mezzanine C-1
Book value	$	3,094,000		$	2,974,000
Fair value	$	1,746,000		$	2,424,000
Unrealized gains/(losses)	$	(1,348,000	)	$	(550,000	)
Other-than-temporary impairment recorded in earnings	$	1,111,000		$	1,111,000
Lowest credit rating assigned	CCC			CCC
Number of performing banks	35			35
Number of issuers in default	8			8
Number of issuers in deferral	1			1
Original collateral	$	360,850,000		$	360,850,000
Actual defaults & deferrals as a % of original collateral	13.7		%	13.7		%
Remaining collateral	$	340,712,000		$	334,542,000
Actual defaults & deferrals as a % of remaining collateral	14.5		%	14.8		%
Expected defaults & deferrals as a % of remaining collateral	40.6		%	41.8		%
Estimated incremental defaults required to break yield	$	69,546,000		$	64,997,000
Performing collateral	$	292,438,000		$	286,327,000
Current balance of class	$	34,694,000		$	34,461,000
Subordination	$	267,628,000		$	259,664,000
Excess subordination	$	17,100,000		$	19,005,000
Excess subordination as a % of remaining performing collateral	5.8		%	6.6		%
Discount rate (1)	1.78%-3.31%			2.47%-3.90%
Expected defaults & deferrals as a % of remaining collateral (2)	2% / .36			2% / .36
Recovery assumption (3)	10		%	10		%
Prepayment assumption (4)	1		%	1		%

(1) The discount rate for floating rate bonds is a compound interest formula based on the LIBOR forward curve for each payment date

(2) 2% annually for 2 years and 36 basis points annually thereafter

(3) With 2 year lag

(4) Additional assumptions regarding prepayments:

Banks with more than $15 billion in total assets as of 12/31/2009:

(a) For fixed rate TruPS, all securities will be called in one year

(b) For floating rate TruPS, (1) all securities with spreads greater than 250 bps will be called in one year (2) all securities with spreads between 150 bps and 250 bps will be called at a rate of 5% annually (3) all securities with spreads less than 150 bps will be called at a rate of 1% annually

Banks with less than $15 billion in total assets as of 12/31/2009:

(a) For fixed rate TruPS, (1) all securities with coupons greater than 8% that were issued by healthy banks with the capacity to prepay will be called in one year (2) All remaining fixed rate securities will be called at a rate of 1% annually

(b) For floating rate TruPs, all securities will be called at a rate of 1% annually

The trust preferred pooled security is a Collateralized Debt Obligation (“CDOs”) backed by a pool of debt securities issued by financial institutions. The collateral consists of trust-preferred securities and subordinated debt securities issued by banks, bank holding companies and insurance companies. Performing collateral is the amount of remaining collateral less the balances of collateral in deferral or default. Subordination is the amount of performing collateral in excess of the current balance of a specified class and all classes senior to the specified class. Excess subordination is the amount that the performing collateral balance exceeds the current outstanding balance of the specific class, plus all senior classes. It is a static measure of credit enhancement, but does not incorporate all of the structural elements of the security deal. This amount can also be impacted by future defaults and deferrals, deferring balances that cure or redemptions of securities by issuers. A negative excess subordination indicates that the current performing collateral of the security would be insufficient to pay the current principal

balance of the class notes after all of the senior classes’ notes were paid. However, the performing collateral balance excludes

the collateral of issuers currently deferring their interest payments. Because these issuers are expected to resume payment in the future (within five years of the first deferred interest period), a negative excess subordination does not necessarily mean a class note holder will not receive a greater than projected or even full payment of cash flow at maturity.

The Company’s trust preferred security investment allows, under the terms of the issue, for issuers to defer interest for up to five consecutive years. After five years, if not cured, the security is considered to be in default and the trustee may demand payment in full of principal and accrued interest. Issuers are also considered to be in default in the event of the failure of the issuer or a subsidiary. The structuring of the trust preferred security provides for a waterfall approach to absorbing losses whereby lower classes or tranches are initially impacted and more senior tranches are only impacted after lower tranches can no longer absorb losses. Likewise, the waterfall approach also applies to principal and interest payments received, as senior tranches have priority over lower tranches in the receipt of payments. Both deferred and defaulted issuers are considered non-performing, and the trustee calculates, on a quarterly basis, certain coverage tests prior to the payment of cash interest to owners of the various tranches of the securities. The coverage tests are compared to an over-collateralization target that states the balance of performing collateral as a percentage of the tranche balance plus the balance of all senior tranches. The tests must show that performing collateral is sufficient to meet requirements for the senior tranches, both in terms of cash flow and collateral value, before cash interest can be paid to subordinate tranches. As a result of the cash flow waterfall provisions within the structure of the security, when a senior tranche fails its coverage test, all of the cash flows that would have been paid to lower tranches are paid to the senior tranche and recorded as a reduction of the senior tranches’ principal. This principal reduction in the senior tranche continues until the coverage test of the senior tranche is passed or the principal of the tranche is paid in full. For so long as the cash flows are being diverted to the senior tranches, the amount of interest due and payable to the subordinate tranches is capitalized and recorded as an increase in the principal value of the tranche. The Company’s trust preferred security investment is in the mezzanine tranche or class which is subordinate to more senior tranches of the issue. The Company is receiving PIK for this security due to failure of the required senior tranche coverage tests described. This security is projected to remain in PIK status for approximately two more quarters.

The impact of payment of PIK to subordinate tranches is to strengthen the position of the senior tranches by reducing the senior tranches’ principal balances relative to available collateral and cash flow. The impact to the subordinate tranches is to increase principal balances, decrease cash flow, and increase credit risk to the tranches receiving the PIK. The risk to holders of a security of a tranche in PIK status is that the remaining total cash flow will not be sufficient to repay all principal and capitalized interest related to the investment.

During the fourth quarter of 2010, after analysis of the expected future cash flows and the timing of resumed interest payments, the Company determined that placing the trust preferred security on non-accrual status was the most prudent course of action. The Company stopped all accrual of interest and ceased to capitalize any PIK to the principal balance of the security. The Company intends to keep the security on non-accrual status until the scheduled interest payments resume on a regular basis and any previously recorded PIK has been paid. The PIK status of the securities, among other factors, indicates potential other-than-temporary impairment (“OTTI”) and accordingly, the Company has performed further detailed analysis of the investments cash flows and the credit conditions of the underlying issuers. This analysis incorporates, among other things, the waterfall provisions and any resulting PIK status of these securities to determine if cash flow will be sufficient to pay all principal and interest due to the investment tranche held by the Company.

See discussion below and Note 3 – Investment Securities in the notes to the financial statements for more detail regarding this analysis. Based on this analysis, the Company believes the amortized costs recorded for the trust preferred security investment accurately reflects the position of the security at June 30, ~~2016~~2017 and December 31, ~~2015~~2016.

Other-than-temporary Impairment of Securities

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

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

how much fair value has declined below amortized cost;

how long the decline in fair value has existed;

the financial condition of the issuers;

contractual or estimated cash flows of the security;

underlying supporting collateral;

past events, current conditions and forecasts;

significant rating agency changes on the issuer; and

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

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

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

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

Loans

The loan portfolio (net of unearned interest) is the largest category of the Company’s earning assets. The following table summarizes the composition of the loan portfolio, including loans held for sale, as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 (in thousands):


	June 30, 2016		% Outstanding Loans		December 31, 2015		% Outstanding Loans		June 30, 2017		% Outstanding Loans		December 31, 2016		% Outstanding Loans
Construction and land development	$	33,812	2.6	%	$	39,209	3.1	%	$	68,681	3.8	%	$	49,104	2.7	%
Agricultural real estate	122,311		9.3	%	122,474		9.6	%	123,420		6.8	%	126,108		6.9	%
1-4 Family residential properties	220,487		16.8	%	231,571		18.1	%	310,522		17.0	%	326,415		17.9	%
Multifamily residential properties	47,215		3.6	%	45,740		3.6	%	72,492		4.0	%	83,200		4.6	%
Commercial real estate	445,832		33.9	%	409,172		31.9	%	632,492		34.5	%	630,135		34.5	%
Loans secured by real estate	869,657		66.2	%	848,166		66.3	%	1,207,607		66.1	%	1,214,962		66.6	%
Agricultural loans	72,776		5.5	%	75,886		5.9	%	79,759		4.4	%	86,685		4.7	%
Commercial and industrial loans	301,087		22.8	%	305,060		23.7	%	421,280		23.1	%	409,033		22.4	%
Consumer loans	38,049		2.9	%	41,579		3.2	%	32,814		1.8	%	38,028		2.1	%
All other loans	33,618		2.6	%	11,198		0.9	%	84,174		4.6	%	77,284		4.2	%
Total loans	$	1,315,187	100.0	%	$	1,281,889	100.0	%	$	1,825,634	100.0	%	$	1,825,992	100.0	%

Overall ~~net loans increased $33.3 million, or 2.60%. The increase was primarily due an increase in commercial real estate~~ loan balances ~~offset by declines in 1-4 family residential properties.~~decreased $358,000, or 0.02%. The balance of real estate loans held for sale, included in the balances shown above, amounted to ~~$1,346,000~~$1,932,000 and ~~$968,000~~$1,175,000 as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016, 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, ~~2016~~2017 and December 31, ~~2015~~2016 (dollars in thousands):


	June 30, 2016				December 31, 2015				June 30, 2017				December 31, 2016
	Principal balance		% Outstanding Loans		Principal balance		% Outstanding loans		Principal balance		% Outstanding Loans		Principal balance		% Outstanding loans
Central region	418,146		31.9	%	401,150		31.3	%	461,774		25.3	%	465,458		25.5	%
Sullivan region	171,123		13.0	%	161,921		12.6	%	162,118		8.9	%	170,463		9.3	%
Decatur region	285,885		21.7	%	287,788		22.5	%	326,771		17.9	%	313,459		17.2	%
Peoria region	182,146		13.8	%	172,203		13.4	%	195,162		10.7	%	204,514		11.2	%
Highland region	116,005		8.8	%	114,378		8.9	%	545,533		29.8	%	538,325		29.5	%
Southern region	141,882		10.8	%	144,449		11.3	%	134,276		7.4	%	133,773		7.3	%
Total all regions	$	1,315,187	100.0	%	$	1,281,889	100.0	%	$	1,825,634	100.0	%	$	1,825,992	100.0	%

Loans are geographically dispersed among these regions located in central and ~~southern~~southwestern Illinois. While these regions have experienced some economic stress during ~~2016~~2017 and ~~2015,~~2016, 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, ~~2016~~2017 and December 31, ~~2015~~2016, 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, 2016				December 31, 2015				June 30, 2017				December 31, 2016
	Principal balance		% Outstanding Loans		Principal balance		% Outstanding Loans		Principal balance		% Outstanding Loans		Principal balance		% Outstanding Loans
Other grain farming	$	162,729	12.37	%	$	161,495	12.60	%	$	164,703	9.02	%	$	171,336	9.38	%
Lessors of non-residential buildings	116,381		8.85	%	109,070		8.51	%	145,789		7.99	%	134,019		7.34	%
Lessors of residential buildings & dwellings	64,362		4.89	%	67,513		5.27	%	129,722		7.11	%	139,584		7.64	%
Hotels and motels	65,013		4.94	%	62,881		4.91	%	120,530		6.60	%	103,843		5.69	%
Automobile Dealers									49,874		2.73	%	54,261		2.97	%

Balances of automobile dealers were not a concentration June 30, 2017, but is shown here for comparative purposes. The Company had no further industry loan concentrations in excess of 25% of total risk-based capital.

The following table presents the balance of loans outstanding as of June 30, ~~2016~~2017, by contractual maturities (in thousands):


	Maturity (1)								Maturity (1)
	One year or less(2)		Over 1 through 5 years		Over 5 years		Total		One year or less(2)		Over 1 through 5 years		Over 5 years		Total
Construction and land development	$	26,299	$	5,965	$	1,548	$	33,812	$	42,660	$	18,750	$	7,271	$	68,681
Agricultural real estate	12,202		45,542		64,567		122,311		13,626		43,787		66,007		123,420
1-4 Family residential properties	17,945		73,866		128,676		220,487		30,220		83,635		196,667		310,522
Multifamily residential properties	2,301		19,160		25,754		47,215		8,649		40,585		23,258		72,492
Commercial real estate	34,622		264,684		146,526		445,832		81,256		314,761		236,475		632,492
Loans secured by real estate	93,369		409,217		367,071		869,657		176,411		501,518		529,678		1,207,607
Agricultural loans	57,505		12,688		2,583		72,776		62,248		14,562		2,949		79,759
Commercial and industrial loans	154,898		111,890		34,299		301,087		197,288		182,898		41,094		421,280
Consumer loans	4,035		27,849		6,165		38,049		4,431		26,182		2,201		32,814
All other loans	3,332		5,979		24,307		33,618		18,974		10,930		54,270		84,174
Total loans	$	313,139	$	567,623	$	434,425	$	1,315,187	$	459,352	$	736,090	$	630,192	$	1,825,634

(1) Based upon remaining contractual maturity.

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

As of June 30, ~~2016,~~2017, loans with maturities over one year consisted of approximately ~~$833.6 million~~$1.2 billion in fixed rate loans and approximately ~~$168.5~~$200 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, ~~2016~~2017 and December 31, ~~2015~~2016 (in thousands):


	June 30, 2016			December 31, 2015			June 30, 2017			December 31, 2016
Nonaccrual loans	$	4,311		$	3,412		$	11,014		$	12,053
Restructured loans which are performing in accordance with revised terms	319			601			6,111			6,185
Total nonperforming loans	4,630			4,013			17,125			18,238
Repossessed assets	482			478			4,434			1,985
Total nonperforming loans and repossessed assets	$	5,112		$	4,491		$	21,559		$	20,223
Nonperforming loans to loans, before allowance for loan losses	0.36		%	0.31		%	0.94		%	1.00		%
Nonperforming loans and repossessed assets to loans, before allowance for loan losses	0.40		%	0.35		%	1.18		%	1.11		%

The ~~$899,000 increase~~$1,039,000 decrease in nonaccrual loans during ~~2016~~2017 resulted from the net of ~~$1,652,000~~$4,456,000 of loans put on nonaccrual status offset by ~~$558,000~~$4,209,000 of loans becoming current or paid-off, ~~$81,000~~$371,000 of loans transferred to other real estate and ~~$114,000~~$915,000 of loans charged off.

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


	June 30, 2016				December 31, 2015				June 30, 2017				December 31, 2016
	Balance		% of Total		Balance		% of Total		Balance		% of Total		Balance		% of Total
Construction and land development	$	234	5.4	%	$	142	4.2	%	$	593	5.4	%	$	227	1.9	%
Agricultural real estate	450		10.4	%	454		13.3	%	16		0.1	%	205		1.7	%
1-4 Family residential properties	945		21.9	%	975		28.5	%	2,302		20.9	%	2,890		24.0	%
Multifamily Residential properties	304		7.1	%	317		9.3	%	605		5.5	%	528		4.4	%
Commercial real estate	1,097		25.4	%	269		7.9	%	4,426		40.2	%	4,971		41.2	%
Loans secured by real estate	3,030		70.2	%	2,157		63.2	%	7,942		72.1	%	8,821		73.2	%
Agricultural loans	15		0.3	%	79		2.3	%	826		7.5	%	1,388		11.5	%
Commercial and industrial loans	1,014		23.7	%	928		27.2	%	1,622		14.7	%	1,430		11.9	%
Consumer loans	242		5.6	%	248		7.3	%	624		5.7	%	414		3.4	%
All Other Loans	10		0.2	%	—		—	%
Total loans	$	4,311	100.0	%	$	3,412	100.0	%	$	11,014	100.0	%	$	12,053	100.0	%

Interest income that would have been reported if nonaccrual and restructured loans had been performing totaled ~~$80,000~~$140,000 and ~~$39,000~~$80,000 for the six months ended June 30, ~~2016~~2017 and ~~2015~~2016, respectively.

The ~~$4,000~~$2,449,000 increase in repossessed assets during the first six months of ~~2016~~2017 resulted from the net of ~~$225,000~~$7,568,000 of additional assets repossessed and ~~$221,000~~$5,119,000 of repossessed assets sold. The following table summarizes the composition of repossessed assets (in thousands):


	June 30, 2016				December 31, 2015				June 30, 2017				December 31, 2016
	Balance		% of Total		Balance		% of Total		Balance		% of Total		Balance		% of Total
Construction and land development	$	186	38.6	%	$	186	38.9	%	$	2,163	48.8	%	$	1,711	86.2	%
Farm Loans									—		—	%	40		2.0	%
1-4 family residential properties	116		24.1	%	—		—	%	284		6.4	%	231		11.6	%
Commercial real estate	134		27.8	%	291		60.9	%	242		5.5	%	—		—	%
Total real estate	436		90.5	%	477		99.8	%	2,689		60.7	%	1,982		99.8	%
Consumer Loans	46		9.5	%	1		0.2	%
Commercial & industrial loans									1,718		38.7	%	—		—	%
Consumer loans									27		0.6	%	3		0.2	%
Total repossessed collateral	$	482	100.0	%	$	478	100.0	%	$	4,434	100.0	%	$	1,985	100.0	%

Repossessed assets sold during the first six months of 2017 resulted in net losses of $17,000, of which $30,000 of net losses was related to real estate asset sales and $13,000 of net gains was related to other repossessed assets. Repossessed assets sold during the same period in 2016 resulted in net losses of $17,000, of which $22,000 was related to real estate asset sales and $5,000 was related to other repossessed assets. ~~Repossessed assets sold during 2015 resulted in net losses of $18,000, all of which related to real estate asset sales.~~

Loan Quality and Allowance for Loan Losses

The allowance for loan 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.

Given the current state of the economy, management did assess the impact of the recession on each category of loans and adjusted historical loss factors to reflect the prolonged weakened economic conditions. Some of the economic factors include 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, ~~2016,~~2017, the Company’s loan portfolio included ~~$195.2~~$203.3 million of loans to borrowers whose businesses are directly related to agriculture. Of this amount, ~~$162.7~~$164.7 million was concentrated in other grain farming. Total loans to borrowers whose businesses are directly related to agriculture decreased ~~$3.4~~$9.7 million from ~~$198.6~~$213.0 million at December 31, ~~2015~~2016 while loans concentrated in other grain farming ~~increased $1.2~~decreased $6.6 million from ~~$161.5~~$171.3 million at December 31, ~~2015.~~2016.

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 ~~$65.0~~$120.5 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 ~~$116.4~~$145.8 million of loans to lessors of non-residential buildings, ~~and $64.4~~$129.7 million of loans to lessors of residential buildings and dwellings.

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

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

Analysis of the allowance for loan losses as of June 30, ~~2016~~2017 and ~~2015,~~2016, and of changes in the allowance for the three and six month periods ended June 30, ~~2016~~2017 and ~~2015,~~2016, is as follows (dollars in thousands):


	Three months ended June 30,						Six months ended June 30,						Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015			2017			2016			2017			2016
Average loans outstanding, net of unearned income	$	1,292,000		$	1,056,517		$	1,280,356		$	1,050,177		$	1,805,619		$	1,292,000		$	1,815,417		$	1,280,356
Allowance-beginning of period	14,736			14,106			14,576			13,682			17,846			14,736			16,753			14,576
Charge-offs:
Real estate-mortgage	112			65			221			99			162			112			351			221
Commercial, financial & agricultural	518			12			533			12			1,421			518			1,893			533
Installment	30			251			78			254			50			30			72			78
Other	79			53			144			106			85			79			165			144
Total charge-offs	739			381			976			471			1,718			739			2,481			976
Recoveries:
Real estate-mortgage	323			6			415			176			161			323			171			415
Commercial, financial & agricultural	67			15			201			42			37			67			51			201
Installment	5			10			12			16			6			5			10			12
Other	39			32			90			78			37			39			143			90
Total recoveries	434			63			718			312			241			434			375			718
Net charge-offs (recoveries)	305			318			258			159			1,477			305			2,106			258
Provision for loan losses	733			143			846			408			1,840			733			3,562			846
Allowance-end of period	$	15,164		$	13,931		$	15,164		$	13,931		$	18,209		$	15,164		$	18,209		$	15,164
Ratio of annualized net charge-offs to average loans	0.09		%	0.12		%	0.04		%	0.03		%	0.33		%	0.09		%	0.46		%	0.04		%
Ratio of allowance for loan losses to loans outstanding (less unearned interest at end of period)	1.15		%	1.32		%	1.15		%	1.32		%	1.00		%	1.15		%	1.00		%	1.15		%
Ratio of allowance for loan losses to nonperforming loans	328		%	454		%	328		%	454		%	106		%	328		%	106		%	328		%

The ratio of allowance for loan losses to loans outstanding was 1.00% as of June 30, 2017 compared to 1.15% as of June 30, 2016 compared to 1.32% as of June 30, 2015. The decrease in the ratio is primarily due to $152 million of additional loans added during the third quarter of 2015 from the ONB Branch acquisition that were all performing loans. The acquired loans were recorded at fair value.2016. The ratio of the allowance for loan losses to nonperforming loans is 106% as of June 30, 2017 compared to 328% as of June 30, ~~2016 compared to 454% as of June 30, 2015.~~2016. The decrease in this ratio is primarily due to the increase in nonperforming loans to $17.1 million at June 30, 2017 from $4.6 million at June 30, 2016 ~~from $3.1 million~~. The ratios also decreased as acquired First Clover Leaf loans were recorded at fair value and First Clover Leaf's allowance for loan loss was not carried over in accordance with ASC 805.~~June 30, 2015~~.

During the first six months of ~~2016,~~2017, the Company had net charge-offs of ~~$258,000~~$2,106,000 compared to ~~$159,000~~net charge-offs of $258,000 in ~~2015~~.2016. During the first six months of 2017 there were charge offs of commercial real estate loans to two borrowers of $215,000, charge offs of two agricultural loans to one borrower of $662,000, and charge offs of five commercial operating loans to two borrowers of $1,052,000. During the first six months of 2016, there was one significant charge off of a residential real estate loan to a single borrower of $83,000 and one significant charge off of a commercial operating loan to a single borrower of $437,000. ~~There were no significant charge offs during the first six months of 2015.~~

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 ended June 30, ~~2016~~2017 and ~~2015~~2016 and for the year ended December 31, ~~2015~~2016 (dollars in thousands):


	Six months ended June 30, 2016				Six months ended June 30, 2015				Year ended December 31, 2015				Six months ended June 30, 2017				Six months ended June 30, 2016				Year ended December 31, 2016
	Average Balance		Weighted Average Rate		Average Balance		Weighted Average Rate		Average Balance		Weighted Average Rate		Average Balance		Weighted Average Rate		Average Balance		Weighted Average Rate		Average Balance		Weighted Average Rate
Demand deposits:
Non-interest-bearing	$	344,100	—	%	$	225,492	—	%	$	267,175	—	%	$	438,839	—	%	$	344,100	—	%	$	372,339	—	%
Interest-bearing	801,701		0.10	%	570,116		0.12	%	669,442		0.11	%	1,128,273		0.14	%	801,701		0.10	%	881,994		0.11	%
Savings	333,968		0.13	%	284,308		0.14	%	298,594		0.13	%	369,180		0.13	%	333,968		0.13	%	340,746		0.13	%
Time deposits	239,099		0.45	%	203,137		0.52	%	219,836		0.53	%	367,484		0.43	%	239,099		0.45	%	298,124		0.43	%
Total average deposits	$	1,718,868	0.14	%	$	1,283,053	0.16	%	$	1,455,047	0.16	%	$	2,303,776	0.16	%	$	1,718,868	0.14	%	$	1,893,203	0.14	%

The following table sets forth the high and low month-end balances for the six months ended June 30, ~~2016~~2017 and ~~2015~~2016 and for the year ended December 31, ~~2015~~2016 (in thousands):


	Six months ended June 30, 2016		Six months ended June 30, 2015		Year ended December 31, 2015		Six months ended June 30, 2017		Six months ended June 30, 2016		Year ended December 31, 2016
High month-end balances of total deposits	$	1,740,354	$	1,297,366	$	1,741,079	$	2,331,084	$	1,740,354	$	2,329,887
Low month-end balances of total deposits	1,703,014		1,266,199		1,266,199		2,282,214		1,703,014		1,699,770

During the first six months of ~~2016,~~2017, the average balance of deposits increased by ~~$263.8~~$410.6 million from the average balance for the year ended December 31, ~~2015~~2016. Average non-interest bearing deposits increased by ~~$76.9~~$66.5 million, average interest bearing balances increased by ~~$132.3~~$246.3 million, savings account balances increased ~~$35.4~~$28.4 million and balances of time deposits increased ~~$19.3~~$69.4 million. These increases were primarily the result of deposit balances acquired in the acquisition of ~~twelve ONB Branches,~~First Clover Leaf during the third quarter of ~~2015.~~2016.

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, ~~2016~~2017 and December 31, ~~2015~~2016 (in thousands):


	June 30, 2016		December 31, 2015		June 30, 2017		December 31, 2016
3 months or less	$	31,900	$	30,108	$	27,489	$	23,796
Over 3 through 6 months	17,555		10,714		24,740		20,352
Over 6 through 12 months	21,601		23,091		42,581		37,094
Over 12 months	30,831		24,942		48,912		70,020
Total	$	101,887	$	88,855	$	143,722	$	151,262

Repurchase Agreements and Other Borrowings

Securities sold under agreements to repurchase are short-term obligations of First Mid Bank. ~~First Mid Bank collateralizes these~~These obligations are collateralized with certain government securities that are direct obligations of the United States or one of its agencies. ~~First Mid Bank offers these~~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, ~~2016~~2017 and December 31, ~~2015~~2016 is presented below (dollars in thousands):


	June 30, 2016			December 31, 2015			June 30, 2017			December 31, 2016
Securities sold under agreements to repurchase	$	131,099		$	128,842		$	142,411		$	185,763
Federal Home Loan Bank advances:
Fixed term – due in one year or less	20,000			5,000			—			5,000
Fixed term – due after one year	20,000			15,000			45,066			35,094
Debt:
Debt due in one year or less							—			4,000
Debt due after one year							12,188			14,063
Junior subordinated debentures	20,620			20,620			23,959			23,917
Total	$	191,719		$	169,462		$	223,624		$	267,837
Average interest rate at end of period	0.57		%	0.77		%	0.94		%	0.52		%
Maximum outstanding at any month-end:
Securities sold under agreements to repurchase	$	138,074		$	128,842		$	163,626		$	185,763
Federal funds purchased	2,500			—			9,000			12,500
Federal Home Loan Bank advances:
FHLB-Overnight							30,000			10,000
Fixed term – due in one year or less	20,000			10,000			5,000			20,000
Fixed term – due after one year	20,000			20,000			45,066			35,109
Debt:
Debt due in one year or less	—			2,000			4,000			7,000
Debt due after one year							14,063			15,000
Junior subordinated debentures	20,620			20,620			23,959			23,917
Averages for the period (YTD):
Securities sold under agreements to repurchase	$	125,782		$	113,748		$	157,413		$	129,734
Federal funds purchased	619			142			1,725			1,795
Federal Home Loan Bank advances:
FHLB-overnight	1,758			—			3,061			3,992
Fixed term – due in one year or less	5,824			5,479			4,751			10,260
Fixed term – due after one year	15,275			17,685			35,110			22,396
Debt:
Loans due in one year or less	60			471			1,326			1,454
Loans due after one year							13,581			4,749
Junior subordinated debentures	20,620			20,620			23,935			21,650
Total	$	169,938		$	158,145		$	240,902		$	196,030
Average interest rate during the period	0.77		%	0.36		%	0.91		%	0.81		%

Securities sold under agreements to repurchase ~~increased $2.3~~decreased $43.4 million during the first six months of ~~2016~~2017 primarily due to the seasonal declines in balances of various customers. FHLB advances represent borrowings by First Mid Bank to economically fund loan demand.

At June 30, ~~2016~~2017 the fixed term advances consisted of ~~$40~~$45 million as follows:

$5 million advance with a ~~10-year~~3-year maturity, at ~~4.58%~~1.30%, due ~~July 14, 2016, one year lockout, callable quarterly~~

~~$5 million advance with a 3-month maturity, at 0.50%, due September 19, 2016~~

~~$5 million advance with a 6-month maturity, at 0.59%, due December, 19, 2016~~

~~$5 million advance with a 1-year maturity, at 0.82%, due June 21, 2017~~May 7, 2018

$5 million advance with a 2-year maturity, at 0.99%, due June 21, 2018

$10 million advance with a 3-year maturity, at 1.42%, due November 5, 2018

$5 million advance with a 1.5-year maturity, at 1.49%, due December 28, 2018

$5 million advance with a 2-year maturity, at 1.56%, due June 28, 2019

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

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

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

The Company is party to a revolving credit agreement with The Northern Trust Company in the amount of ~~$15~~$10 million. The balance on this line of credit was $0 as of June 30, ~~2016.~~2017. This loan was renewed on April ~~15, 2016~~14, 2017 for one year as a revolving credit agreement with a maximum available balance of ~~$15~~$10 million. The interest rate is floating at 2.25% over the federal funds rate ~~(2.55%~~(3.41% at June 30, ~~2016)~~2017). The loan is ~~unsecured and subject to a borrowing agreement containing requirements for~~secured by all of the ~~Company and~~stock of First Mid ~~Bank, including requirements for operating and capital ratios.~~Bank. The Company and its subsidiary bank were in compliance with the then existing covenants at June 30, ~~2016~~2017 and ~~2015~~2016 and December 31, ~~2015~~2016.

On September 7, 2016, the Company entered into a credit agreement with The Northern Trust Company in the amount of $15 million as a fixed-rate note with a maturity date of September 7, 2020. The interest rate is floating at 2.25% over the federal funds rate (3.41% at June 30, 2017) and interest and principle payments are due quarterly. As of June 30, 2017, the balance due was $12.2 million . The loan is secured by all of the stock of First Mid Bank. The Company used the proceeds of this note to fund the cash portion of the acquisition price of First Clover Leaf Financial. The Company and its subsidiary bank were in compliance with the then existing covenants at June 30, 2017 and December 31, 2016.

On February 27, 2004, the Company completed the issuance and sale of $10 million of floating rate trust preferred securities through First Mid-Illinois Statutory Trust I (“Trust I”), a statutory business trust and wholly-owned unconsolidated subsidiary of the Company, as part of a pooled offering. The Company established Trust I for the purpose of issuing the trust preferred securities. The $10 million in proceeds from the trust preferred issuance and an additional $310,000 for the Company’s investment in common equity of Trust I, a total of ~~$10,310 000,~~$10,310,000, was invested in junior subordinated debentures of the Company. The underlying junior subordinated debentures issued by the Company to Trust I mature in 2034, bear interest at three-month London Interbank Offered Rate (“LIBOR”) plus 280 basis points ~~(3.48%~~(4.01% and 3.17% at June 30, ~~2016~~2017 and December 31, ~~2015~~2016), reset quarterly, and are callable at par, at the option of the Company, quarterly. The Company used the proceeds of the offering for general corporate purposes.

On April 26, 2006, the Company completed the issuance and sale of $10 million of fixed/floating rate trust preferred securities through First Mid-Illinois Statutory Trust II (“Trust II”), a statutory business trust and wholly-owned unconsolidated subsidiary of the Company, as part of a pooled offering. The Company established Trust II for the purpose of issuing the trust preferred securities. The $10 million in proceeds from the trust preferred issuance and an additional $310,000 for the Company’s investment in common equity of Trust II, a total of $10,310 000, was invested in junior subordinated debentures of the Company. The underlying junior subordinated debentures issued by the Company to Trust II mature in 2036, bore interest at a fixed rate of 6.98% paid quarterly until June 15, 2011 and then converted to floating rate (LIBOR plus 160 basis ~~points) after June 15, 2011 (2.25%~~points, 2.85% and ~~2.11%~~2.56% at June 30, ~~2016~~2017 and December 31, ~~2015~~2016, respectively). The net proceeds to the Company were used for general corporate purposes, including the Company’s acquisition of Mansfield Bancorp, Inc. in 2006.

On September 8, 2016, the Company assumed the trust preferred securities of Clover Leaf Statutory Trust I (“CLST I”), a statutory business trust that was a wholly owned unconsolidated subsidiary of First Clover Financial. The $4,000,000 of trust preferred securities and an additional $124,000 additional investment in common equity of CLST I, is invested in junior subordinated debentures issued to CLST I. The subordinated debentures mature in 2025, bear interest at three-month LIBOR plus 185 basis points (3.10% and 2.81% at June 30, 2017 and December 31, 2016, respectively) and resets quarterly.

The trust preferred securities issued by Trust I, ~~and~~ Trust II, and CLST I are included as Tier 1 capital of the Company for regulatory capital purposes. On March 1, 2005, the Federal Reserve Board adopted a final rule that allows the continued limited inclusion of trust preferred securities in the calculation of Tier 1 capital for regulatory purposes. The final rule provided a five-year transition period, ending September 30, 2010, for application of the revised quantitative limits. On March 17, 2009, the Federal Reserve Board adopted an additional final rule that delayed the effective date of the new limits on inclusion of trust preferred securities in the calculation of Tier 1 capital until March 31, 2012. The application of the revised quantitative limits did not and is not expected to have a significant impact on its calculation of Tier 1 capital for regulatory purposes or its

classification as well-capitalized. The Dodd-Frank Act, signed into law July 21, 2010, removes trust preferred securities as a permitted component of a holding company’s Tier 1 capital after a three-year phase-in period beginning January 1, 2013 for larger holding companies. For holding companies with less than $15 billion in consolidated assets, existing issues of trust preferred securities are grandfathered and not subject to this new restriction. Similarly, the final rule implementing the Basel III reforms allows holding companies with less than $15 billion in consolidated assets as of December 31, 2009 to continue to count toward Tier 1 capital any trust preferred securities issued before May 19, 2010. New issuances of trust preferred securities, however would not count as Tier 1 regulatory capital.

In addition to requirements of the Dodd-Frank Act discussed above, the act also required the federal banking agencies to adopt rules that prohibit banks and their affiliates from engaging in proprietary trading and investing in and sponsoring certain unregistered investment companies (defined as hedge funds and private equity funds). This rule is generally referred to as the “Volcker Rule.” On December 10, 2013, the federal banking agencies issued final rules to implement the prohibitions required by the Volcker Rule. Following the publication of the final rule, and in reaction to concerns in the banking industry regarding the adverse impact the final rule’s treatment of certain collateralized debt instruments has on community banks, the federal banking agencies approved an interim final rule to permit banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities. Under the interim final rule, the agencies permit the retention of an interest in or sponsorship of covered funds by banking entities under $15 billion in assets if (1) the collateralized debt obligation was established and issued prior to May 19, 2010, (2) the banking entity reasonably believes that the offering proceeds received by the collateralized debt obligation were invested primarily in qualifying trust preferred collateral, and (3) the banking entity’s interests in the collateralized debt obligation was acquired on or prior to December 10, 2013. Although the Volcker Rule impacts many large banking entities, the Company does not currently anticipate that the Volcker Rule will have a material effect on the operations of the Company or First Mid Bank.

Interest Rate Sensitivity

The Company seeks to maximize its net interest margin while maintaining an acceptable level of interest rate risk. Interest rate risk can be defined as the amount of forecasted net interest income that may be gained or lost due to changes in the interest rate environment, a variable over which management has no control. Interest rate risk, or sensitivity, arises when the maturity or repricing characteristics of interest-bearing assets differ significantly from the maturity or repricing characteristics of interest-bearing liabilities. The Company monitors its interest rate sensitivity position to maintain a balance between rate sensitive assets and rate sensitive liabilities. This balance serves to limit the adverse effects of changes in interest rates. The Company’s asset liability management committee (ALCO) oversees the interest rate sensitivity position and directs the overall allocation of funds.

In the banking industry, a traditional way to measure potential net interest income exposure to changes in interest rates is through a technique known as “static GAP” analysis which measures the cumulative differences between the amounts of assets and liabilities maturing or repricing at various intervals. By comparing the volumes of interest-bearing assets and liabilities that have contractual maturities and repricing points at various times in the future, management can gain insight into the amount of interest rate risk embedded in the balance sheet.

The following table sets forth the Company’s interest rate repricing GAP for selected maturity periods at June 30, ~~2016~~2017 (dollars in thousands):

Rate Sensitive Within Fair Value
1 year 1-2 years 2-3 years 3-4 years 4-5 years Thereafter Total
Interest-earning assets:
Federal funds sold and other interest-bearing deposits $ 5,934
$ —
$ —
$ —
$ —
$ —
$ 5,934
$ 5,935
Certificates of deposit investments $ 30,307
$ —
$ —
$ —
$ —
$ —
$ 30,307
$ 30,391
Taxable investment securities 83
4
10,042
25,186
46,320
418,062
499,697
500,648
Nontaxable investment securities —
225
425
301
1,980
110,110
113,041
113,041
Loans 576,834
237,514
169,586
109,828
140,769
80,656
1,315,187
1,313,628
Total $ 613,158

$ 237,743

$ 180,053

$ 135,315

$ 189,069

$ 608,828

$ 1,964,166

$ 1,963,643
Interest-bearing liabilities:

Savings and NOW accounts $ 177,432
$ 44,178
$ 45,934
$ 65,249
$ 67,269
$ 399,900
$ 799,962
$ 799,962
Money market accounts 279,205
2,908
2,988
3,877
3,958
20,918
313,854
313,854
Other time deposits 175,968
38,571
15,998
9,034
9,189
1,047
249,807
250,477
Short-term borrowings/debt 131,099
—
—
—
—
—
131,099
131,125
Long-term borrowings/debt 40,620
5,000
—
—
5,000
10,000
60,620
54,202
Total $ 804,324
$ 90,657
$ 64,920
$ 78,160
$ 85,416
$ 431,865
$ 1,555,342
$ 1,549,620
Rate sensitive assets – rate sensitive liabilities $ (191,166 ) $ 147,086
$ 115,133
$ 57,155
$ 103,653
$ 176,963
$ 408,824

Cumulative GAP $ (191,166 ) $ (44,080 ) $ 71,053
$ 128,208
$ 231,861
$ 408,824

Cumulative amounts as % of total Rate sensitive assets (9.7 )% 7.5 % 5.9 % 2.9 % 5.3 % 9.0 %
Cumulative Ratio (9.7 )% (2.2 )% 3.6 % 6.5 % 11.8 % 20.8 %



	Rate Sensitive Within																				Fair Value
	1 year			1-2 years			2-3 years			3-4 years			4-5 years			Thereafter			Total		Fair Value
Interest-earning assets:
Federal funds sold and other interest-bearing deposits	$	20,765		$	—		$	—		$	—		$	—		$	—		$	20,765	$	20,765
Certificates of deposit investments	$	—		$	245		$	490		$	950		$	—		$	—		$	1,685	$	1,712
Taxable investment securities	151			10,001			13,042			24,200			44,449			490,756			582,599		580,353
Nontaxable investment securities	—			936			589			2,050			7,149			163,098			173,822		176,011
Loans	834,075			252,577			192,550			253,712			179,097			113,623			1,825,634		1,745,031
Total	$	854,991		$	263,759		$	206,671		$	280,912		$	230,695		$	767,477		$	2,604,505	$	2,523,872
Interest-bearing liabilities:
Savings and NOW accounts	$	421,307		$	47,160		$	49,012		$	69,394		$	71,518		$	424,747		$	1,083,138	$	1,083,138
Money market accounts	416,282			2,887			2,967			3,849			3,929			20,771			450,685		450,685
Other time deposits	207,435			57,218			31,570			19,785			13,183			1,048			330,239		334,327
Short-term borrowings/debt	142,411			—			—			—			—			—			142,411		142,406
Long-term borrowings/debt	46,162			20,051			—			5,000			5,000			5,000			81,213		74,992
Total	$	1,233,597		$	127,316		$	83,549		$	98,028		$	93,630		$	451,566		$	2,087,686	$	2,085,548
Rate sensitive assets – rate sensitive liabilities	$	(378,606	)	$	136,443		$	123,122		$	182,884		$	137,065		$	315,911		$	516,819
Cumulative GAP	$	(378,606	)	$	(242,163	)	$	(119,041	)	$	63,843		$	200,908		$	516,819
Cumulative amounts as % of total Rate sensitive assets	(14.5		)%	5.2		%	4.7		%	7.0		%	5.3		%	12.1		%
Cumulative Ratio	(14.5		)%	(9.3		)%	(4.6		)%	2.5		%	7.7		%	19.8		%

The static GAP analysis shows that at June 30, ~~2016~~2017, the Company was liability sensitive, on a cumulative basis, through the twelve-month time horizon. This indicates that future increases in interest rates could have an adverse effect on net interest income. There are several ways the Company measures and manages the exposure to interest rate sensitivity, including static GAP analysis. The Company’s ALCO also uses other financial models to project interest income under various rate scenarios and prepayment/extension assumptions consistent with First Mid Bank’s historical experience and with known industry trends. ALCO meets at least monthly to review the Company’s exposure to interest rate changes as indicated by the various techniques and to make necessary changes in the composition terms and/or rates of the assets and liabilities. The Company is currently experiencing downward pressure on asset yields resulting from the extended period of historically low interest rates and heightened competition for loans. A continuation of this environment could result in a decline in interest income and the net interest margin.

Capital Resources

At June 30, ~~2016~~2017, the Company’s stockholders' equity ~~had~~ increased ~~$11.6~~$20 million, or ~~5.7%~~7%, to ~~$217~~$301 million from ~~$205~~$281 million as of December 31, ~~2015~~2016. During the first six months of ~~2016,~~2017, net income contributed ~~$9.7~~$14.5 million to equity before the payment of dividends to stockholders. The change in market value of available-for-sale investment securities increased stockholders' equity by ~~$4.5~~$8.4 million, net of tax.

The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Bank holding companies follow minimum regulatory requirements established by the Board of Governors of the Federal Reserve System (“Federal Reserve System”), and First Mid Bank follows similar minimum regulatory requirements established for national banks by the Office of the Comptroller of the Currency (“OCC”). Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary action by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Quantitative measures established by regulatory capital standards to ensure capital adequacy require the the Company and its subsidiary bank to maintain a minimum capital amounts and ratios (set forth in the table below). Management believes that, as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016, the Company and First Mid Bank met all capital adequacy requirements.

To be categorized as well-capitalized, total risk-based capital, Tier 1 risk-based capital, common equity Tier 1 risk-based capital and Tier 1 leverage ratios must be maintained as set forth in the following table (dollars in thousands):


	Actual				Required Minimum For Capital Adequacy Purposes			To Be Well-Capitalized Under Prompt Corrective Action Provisions			Actual					Required Minimum For Capital Adequacy Purposes			To Be Well-Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio	Amount		Ratio	Amount			Ratio		Amount		Ratio	Amount		Ratio
June 30, 2016
June 30, 2017
Total Capital (to risk-weighted assets)													��
Company	$	211,490	14.11	%	$	119,978	> 8.00%	N/A		N/A	$	279,932		12.81	%	$	174,803	> 8.00%	N/A		N/A
First Mid Bank	200,132		13.43		119,257		> 8.00	$	149,071	> 10.00%	279,177			12.82		174,220		> 8.00	$	217,775	> 10.00%
Tier 1 Capital (to risk-weighted assets)
Company	196,326		13.09		89,984		> 6.00	N/A		N/A	261,723			11.98		131,102		> 6.00	N/A		N/A
First Mid Bank	184,968		12.41		89,443		> 6.00	119,257		> 8.00	260,968			11.98		130,665		> 6.00	174,220		> 8.00
Common Equity Tier 1 Capital (to risk-weighted assets)	Common Equity Tier 1 Capital (to risk-weighted assets)										Common Equity Tier 1 Capital (to risk-weighted assets)
Company	176,326		11.76		67,488		> 4.50	N/A		N/A	237,764			10.88		98,327		> 4.50	N/A		N/A
First Mid Bank	184,968		12.41		67,082		> 4.50	96,896		> 6.50	260,968			11.98		97,999		> 4.50	141,554		> 6.50
Tier 1 Capital (to average assets)
Company	196,326		9.44		83,220		> 4.00	N/A		N/A	261,723			9.44		110,852		> 4.00	N/A		N/A
First Mid Bank	184,968		8.93		82,874		> 4.00	103,593		> 5.00	260,968			9.45		110,503		> 4.00	138,129		> 5.00
December 31, 2015
December 31, 2016
Total Capital (to risk-weighted assets)
Company	$	204,033	14.25	%	$	114,576	> 8.00%	N/A		N/A	$	270,062		12.79	%	$	168,902	> 8.00%	N/A		N/A
First Mid Bank	195,937		13.75		114,012		> 8.00	$	142,514	> 10.00%	197,552			12.44		127,054		> 8.00	$	158,817	> 10.00%
First Clover Leaf Bank											78,145			15.08		41,459		> 8.00	51,824		> 10.00%
Tier 1 Capital (to risk-weighted assets)
Company	189,457		13.23		85,932		> 6.00	N/A		N/A	253,258			11.99		126,677		> 6.00	N/A		N/A
First Mid Bank	181,361		12.73		85,509		> 6.00	114,012		> 8.00	180,826			11.39		95,290		> 6.00	127,054		> 8.00
First Clover Leaf Bank											78,145			15.08		31,094		> 6.00	41,459		> 8.00
Common Equity Tier 1 Capital (to risk-weighted assets)	Common Equity Tier 1 Capital (to risk-weighted assets)										Common Equity Tier 1 Capital (to risk-weighted assets)
Company	142,057		9.92		64,449		> 4.50	N/A		N/A	229,341			10.86		95,008		> 4.50	N/A		N/A
First Mid Bank	181,361		12.73		64,131		> 4.50	92,634		> 6.50	180,826			11.39		71,468		> 4.50	103,231		> 6.50
First Clover Leaf Bank											78,145			15.08		23,321		> 4.50	33,685		> 6.50
Tier 1 Capital (to average assets)
Company	189,457		9.20		82,385		> 4.00	N/A		N/A	253,258			9.19		110,242		> 4.00	N/A		N/A
First Mid Bank	181,361		8.83		82,137		> 4.00	102,671		> 5.00	180,826			8.62		83,938		> 4.00	104,922		> 5.00
First Clover Leaf Bank											78,145			12.04		25,963		> 4.00	32,453		> 5.00

The Company's risk-weighted assets, capital and capital ratios for June 30, ~~2016~~2017 are computed in accordance with Basel III capital rules which were effective January 1, 2015. Prior periods are computed following previous rules. See heading "Basel III" in the Overview section of this report for a more detailed description of the Basel III rules. As of June 30, ~~2016,~~2017, both the Company and First Mid Bank had capital ratios above the required minimums for regulatory capital adequacy, and First Mid Bank had capital ratios that qualified it for treatment as well-capitalized under the regulatory framework for prompt corrective action with respect to banks. ~~The decrease in capital ratios from December 31, 2014 is primarily due to additional assets from the acquisition partially offset by the capital raise completed by the Company~~First Clover Leaf Bank merged into First Mid Bank during the ~~second~~first quarter of ~~2015.~~

2017.

Stock Plans

Participants may purchase Company stock under the following four plans of the Company: the Deferred Compensation Plan, the First Retirement and Savings Plan, the Dividend Reinvestment Plan, and the SIStock Incentive Plan. For more detailed information on these plans, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016.

At the Annual Meeting of Stockholders held ~~May 23, 2007,~~April 26, 2017, the stockholders approved the 2017 Stock Incentive Plan ("SI ~~Plan.~~Plan"). The SI Plan was implemented to succeed the Company’s ~~1997~~2007 Stock Incentive Plan, which had a ten-year ~~term that expired October 21, 2007.~~term. The SI Plan is intended to provide a means whereby directors, employees, consultants and advisors of the Company and its Subsidiaries may sustain a sense of proprietorship and personal involvement in the continued development and financial success of the Company and its Subsidiaries, thereby advancing the interests of the Company and its stockholders. Accordingly, directors and selected employees, consultants and advisors may be provided the opportunity to acquire shares of Common Stock of the Company on the terms and conditions established in the SI Plan.

A maximum of ~~300,000~~149,983 shares of common stock may be issued under the SI Plan. ~~As of~~ ~~June 30, 2016, the Company had awarded 59,500 shares as stock options under the SI plan.~~ There were no stock options granted in ~~2015~~2017 or ~~2014.~~2016. The Company awarded ~~12,925 shares~~11,473 and ~~16,604 shares~~13,912 stock unit awards during ~~2016~~2017 and ~~2015~~2016, respectively, ~~as Stock Unit Awards~~ under the ~~SI plan.~~2007 Stock Incentive Plan.

Stock Repurchase Program

Since August 5, 1998, the Board of Directors has approved repurchase programs pursuant to which the Company may repurchase a total of approximately $76.7 million of the Company’s common stock. The repurchase programs approved by the Board of Directors are as follows:

On August 5, 1998, repurchases of up to 3%, or $2 million, of the Company’s common stock.

In March 2000, repurchases up to an additional 5%, or $4.2 million of the Company’s common stock.

In September 2001, repurchases of $3 million of additional shares of the Company’s common stock.

In August 2002, repurchases of $5 million of additional shares of the Company’s common stock.

In September 2003, repurchases of $10 million of additional shares of the Company’s common stock.

On April 27, 2004, repurchases of $5 million of additional shares of the Company’s common stock.

On August 23, 2005, repurchases of $5 million of additional shares of the Company’s common stock.

On August 22, 2006, repurchases of $5 million of additional shares of the Company’s common stock.

On February 27, 2007, repurchases of $5 million of additional shares of the Company’s common stock.

On November 13, 2007, repurchases of $5 million of additional shares of the Company’s common stock.

On December 16, 2008, repurchases of $2.5 million of additional shares of the Company’s common stock.

On May 26, 2009, repurchases of $5 million of additional shares of the Company’s common stock.

On February 22, 2011, repurchases of $5 million of additional shares of the Company’s common stock.

On November 13, 2012, repurchases of $5 million of additional shares of the Company's common stock.

On November 19, 2013, repurchases of $5 million additional shares of the Company's common stock.

On October 28, 2014, repurchases of $5 million additional shares of the Company's common stock.

During the six months ended June 30, ~~2016~~2017, the Company did not repurchase any shares. Since 1998, the Company has repurchased a total of 2,042,993 shares at a total price of approximately $69.5 million. As of June 30, ~~2016~~2017, the Company is authorized per all repurchase programs to purchase $7.2 million in additional shares.

Liquidity

Liquidity represents the ability of the Company and its subsidiaries to meet all present and future financial obligations arising in the daily operations of the business. Financial obligations consist of the need for funds to meet extensions of credit, deposit withdrawals and debt servicing. The Company’s liquidity management focuses on the ability to obtain funds economically through assets that may be converted into cash at minimal costs or through other sources. The Company’s other sources of cash include overnight federal fund lines, Federal Home Loan Bank advances, deposits of the State of Illinois, the ability to borrow at the Federal Reserve Bank of Chicago, and the Company’s operating line of credit with The Northern Trust Company. Details for the sources include:

First Mid Bank has $35 million available in overnight federal fund lines, including $10 million from U.S. Bank, N.A., $10 million from Wells Fargo Bank, N.A. and $15 million from The Northern Trust Company. Availability of the funds is subject to First Mid Bank meeting minimum regulatory capital requirements for total capital to risk-weighted assets and Tier 1 capital to total average assets. As of June 30, ~~2016~~2017, First Mid Bank met these regulatory requirements.

First Mid Bank can borrow from the Federal Home Loan Bank as a source of liquidity. Availability of the funds is subject to the pledging of collateral to the Federal Home Loan Bank. Collateral that can be pledged includes one-to-four family residential real estate loans and securities. At June 30, ~~2016,~~2017, the excess collateral at the FHLB would support approximately ~~$97.3~~$157.2 million of additional ~~advances.~~advances for First Mid Bank.

First Mid Bank is a member of the Federal Reserve System and can borrow funds provided that sufficient collateral is pledged.

In addition, as of June 30, ~~2016~~2017, the Company had a revolving credit agreement in the amount of ~~$15~~$10 million with The Northern Trust Company with an outstanding balance of $0 and ~~$15~~$10 million in available funds. This loan was renewed on April ~~15, 2016~~14, 2017 for one year as a revolving credit agreement. The interest rate is floating at 2.25% over the federal funds rate. The loan is ~~unsecured and subject to a borrowing agreement containing requirements for~~secured by all of the ~~Company and~~stock of First Mid Bank, including requirements for operating and capital ratios. The Company and its subsidiary bank were in compliance with the then existing covenants at June 30, ~~2016~~2017 and ~~2015~~2016 and December 31, ~~2015~~2016.

Management continues to monitor its expected liquidity requirements carefully, focusing primarily on cash flows from:

lending activities, including loan commitments, letters of credit and mortgage prepayment assumptions;

deposit activities, including seasonal demand of private and public funds;

investing activities, including prepayments of mortgage-backed securities and call provisions on U.S. Treasury and government agency securities; and

operating activities, including scheduled debt repayments and dividends to stockholders.

The following table summarizes significant contractual obligations and other commitments at June 30, ~~2016~~2017 (in thousands):

Total Less than
1 year 1-3 years 3-5 years More than
5 years
Time deposits $ 249,807
$ 168,499
$ 58,721
$ 21,540
$ 1,047
Debt 20,620
—
—
—
20,620
Other borrowings 171,099
151,099
20,000
—
—
Operating leases 47,024
2,423
4,904
3,837
35,860
Supplemental retirement 686
100
203
100
283
$ 489,236
$ 322,121
$ 83,828
$ 25,477
$ 57,810



	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Time deposits	$	330,239	$	207,435	$	88,788	$	32,968	$	1,048
Debt	36,808		3,750		7,500		938		24,620
Other borrowings	187,411		152,411		20,000		10,000		5,000
Operating leases	44,504		2,560		4,418		3,604		33,922
Supplemental retirement	597		100		142		100		255
	$	599,559	$	366,256	$	120,848	$	47,610	$	64,845

For the six months ended June 30, ~~2016~~2017, net cash of ~~$12.5~~$24.5 million was provided from operating activities and ~~$65.6~~$38.8 million and ~~$9.6~~$87.7 million was used in investing activities and financing activities, respectively. In total, cash and cash equivalents decreased by ~~$62.7~~$102.0 million since year-end ~~2015~~2016.

Off-Balance Sheet Arrangements

First Mid Bank 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. Each of these instruments involves, to varying degrees, elements of credit, interest rate and liquidity risk in excess of the amounts recognized in the consolidated balance sheets. The Company uses the same credit policies and requires similar collateral in approving lines of credit and commitments and issuing letters of credit as it does in making loans. The exposure to credit losses on financial instruments is represented by the contractual amount of these instruments. However, the Company does not anticipate any losses from these instruments.

The off-balance sheet financial instruments whose contract amounts represent credit risk at June 30, ~~2016~~2017 and December 31, ~~2015~~2016 were as follows (in thousands):


	June 30, 2016		December 31, 2015		June 30, 2017		December 31, 2016
Unused commitments and lines of credit:
Commercial real estate	$	57,666	$	27,806	$	109,834	$	128,576
Commercial operating	178,629		174,317		231,207		236,182
Home equity	31,763		33,028		39,909		40,896
Other	56,520		56,353		67,131		70,092
Total	$	324,578	$	291,504	$	448,081	$	475,746
Standby letters of credit	$	7,419	$	6,806	$	8,773	$	9,339

~~The increase in 2016 was primarily due to additional outstanding commitments resulting from the acquisition of the twelve ONB Branches during the third quarter of 2015.~~ Commitments to originate credit represent approved commercial, residential real estate and home equity loans that generally are expected to be funded within ninety days. Lines of credit are agreements by which the Company agrees to provide a borrowing accommodation up to a stated amount as long as there is no violation of any condition established in the loan agreement. Both commitments to originate credit and lines of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the lines and some commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements.

Standby letters of credit are conditional commitments issued by the Company to guarantee the financial performance of customers to third parties. Standby letters of credit are primarily issued to facilitate trade or support borrowing arrangements and generally expire in one year or less. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending credit facilities to customers. The maximum amount of credit that would be extended under letters of credit is equal to the total off-balance sheet contract amount of such instrument.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in the market risk faced by the Company since December 31, ~~2015~~2016. For information regarding the Company’s market risk, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016.

ITEM 4. CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, such officers have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective. Further, there have been no changes in the Company’s internal control over financial reporting during the last fiscal quarter that have materially affected or that are reasonably likely to affect materially the Company’s internal control over financial reporting.

PART II



ITEM 1.	LEGAL PROCEEDINGS

The Company as successor to First Clover Leaf, certain former executive officers of First Clover Leaf, and certain former members of First Clover Leaf’s board of directors, and the Company are named as defendants in one purported class action lawsuit brought by an alleged individual First Clover Leaf stockholder challenging the merger of First Clover Leaf into the Company (the “Lawsuit”). The Lawsuit is captioned Raul v. Highlander, et al , Case No. ~~16-L-703,~~16- L-703, and was filed on May 20, 2016, in the Circuit Court of Madison County, Illinois, Third Judicial District. The Lawsuit alleges breaches of fiduciary duty by the individual officers and directors of First Clover Leaf relating to the process leading to the ~~proposed~~ merger of First Clover Leaf and the Company. The Lawsuit alleges that the merger consideration iswas inadequate and that the joint proxy statement/prospectus ~~does~~did not contain sufficient disclosures and detail. The Lawsuit also alleges that First Clover Leaf and the Company aided and abetted the alleged breaches of fiduciary duty by the individual defendants. ~~The relief sought includes class certification, declaratory relief, an injunction enjoining consummation of~~On July 12, 2017, the merger, rescission of the merger should it be consummated, interest on any monetary judgment, costs, and attorneys’ fees. The Company, First Clover Leaf, and the individual defendants believe that the factual allegations in the Lawsuit are without merit and legally unfounded. They have moveddefendants' motion to dismiss ~~the complaint~~was granted and ~~ntend~~all claims were dismissed with prejudice. The plaintiff can appeal this decision prior to ~~vigorously defend against these allegations.~~

August 11, 2017.

ITEM 1A. RISK FACTORS

Various risks and uncertainties, some of which are difficult to predict and beyond the Company’s control, could negatively impact the Company. As a financial institution, the Company is exposed to interest rate risk, liquidity risk, credit risk, operational risk, risks from economic or market conditions, and general business risks among others. Adverse experience with these or other risks could have a material impact on the Company’s financial condition and results of operations, as well as the value of its common stock. See the risk factors and “Supervision and Regulation” described in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016.



ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ISSUER PURCHASES OF EQUITY SECURITIES
Period (a) Total Number of Shares Purchased (b) Average Price Paid per Share (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
April 1, 2016 - April 30, 2016 0 $0.00 0 $ 7,173,000
May 1, 2016 - May 31, 2016 0 $0.00 0 $ 7,173,000
June 1, 2016 - June 30, 2016 0 $0.00 0 $ 7,173,000
Total 0 $0.00 0 $ 7,173,000

~~See heading “Stock Repurchase Program” for more information regarding stock purchases.~~



ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

None.



ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable.



ITEM 5.	OTHER INFORMATION

None.



ITEM 6.	EXHIBITS

The exhibits required by Item 601 of Regulation S-K and filed herewith are listed in the Exhibit Index that follows the Signature Page and that immediately precedes the exhibits filed.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FIRST MID-ILLINOIS BANCSHARES, INC.

(Registrant)

Date: August ~~5, 2016~~4, 2017

Joseph R. Dively

President and Chief Executive Officer

~~Michael L. Taylor~~Matthew K. Smith

Chief Financial Officer



Exhibit Index to Quarterly Report on Form 10-Q
Exhibit Number	Description and Filing or Incorporation Reference
~~2.1~~	Agreement and Plan of Merger by and between First Mid-Illinois Bancshares, Inc. and First Clover Leaf Financial Corp., dated April 26, 2016 (incorporated by reference Exhibit 2.1 to the Company's Current Report on Form 8-K filed April 26, 2016).

~~2.2~~	~~First Amendment to Agreement and Plan of Merger by and between First Mid-Illinois Bancshares, Inc. and First Clover Leaf Financial Corp., dated as of June 6, 2016.~~

4.1	The Registrant agrees to furnish to the Commission, upon request, a copy of each instrument with respect to issues of long-term debt involving a total amount which does not exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis

10.1	2017 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to First Mid-Illinois Bancshares, Inc.'s Current Report on Form 8-K filed with the SEC on May 1, 2017)

10.2	Form of 2017 Incentive Plan Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to First Mid-Illinois Bancshares, Inc.'s Current Report on Form 8-K filed with the SEC on May 25, 2017)

10.3	Employment Agreement between First Mid-Illinois Bancshares, Inc. and Michael L. Taylor, effective July 25, 2017 (incorporated by reference to Exhibit 10.1 to First Mid-Illinois Bancshares, Inc.'s Current Report on Form 8-K filed with the SEC on July 27, 2017)

10.4	Employment Agreement between First Mid-Illinois Bancshares, Inc. and Matthew K. Smith, effective July 25, 2017 (incorporated by reference to Exhibit 10.2 to First Mid-Illinois Bancshares, Inc.'s Current Report on Form 8-K filed with the SEC on July 27, 2017)

11.1	Statement re: Computation of Earnings Per Share (Filed herewith on page ~~12)~~11)

31.1	Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002

32.1	Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

32.2	Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2016,~~2017, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, (ii) the Consolidated Statements of Income for the three and six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, (iii) the Consolidated Statements of Cash Flows for the six months ended June, ~~30,~~2017 and 2016, ~~and 2015,~~ and (iv) the Notes to Consolidated Financial Statements.



December 31, 2015
Net unrealized gains on securities available-for-sale	$	3,243		$	—		$	3,243
Unamortized losses on held-to-maturity securities transferred from available-for-sale	(834		)	—			(834		)
Securities with other-than-temporary impairment losses	—			(1,224		)	(1,224		)
Tax benefit (expense)	(939		)	477			(462		)
Balance at December 31, 2015	$	1,470		$	(747	)	$	723



	Book Value		Market Value		Unrealized Gains (Losses)			Other-than- temporary Impairment Recorded To-date
PreTSL XXVIII	$	3,094	$	1,746	$	(1,348	)	$	(1,111	)



Purchase price				$	15,892
Less purchase accounting adjustments:
Fair value of loans	$	3,377
Fair value of premises and equipment	125
Fair value of time deposits	837
Core deposit intangible	(6,216		)
Other assets	259
				(1,618		)
Resulting goodwill from acquisition				$	14,274



Purchase price	$	2,807
Less purchase accounting adjustments:
Insurance company intangibles	(1,827		)
Resulting goodwill from acquisition	$	980



ISSUER PURCHASES OF EQUITY SECURITIES
Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share	(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
April 1, 2016 - April 30, 2016	0	$0.00	0	$	7,173,000
May 1, 2016 - May 31, 2016	0	$0.00	0	$	7,173,000
June 1, 2016 - June 30, 2016	0	$0.00	0	$	7,173,000
Total	0	$0.00	0	$	7,173,000