UNITED STATES

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period endedMarch 31, 2023

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 001-36434

FIRST MID BANCSHARES, INC.

(Exact name of Registrant as specified in its charter)

UNITED STATES

Delaware

37-1103704

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 September 30, 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)
Delaware37-1103704

(State or other jurisdiction of incorporation or organization)

(I.R.S. employer identification no.)

1421 Charleston Avenue

Mattoon, Illinois

61938

(Address of principal executive offices)

(Zip code)

(217) 234-7454

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

(217) 234-7454

Common Stock

(Registrant's telephone number, including area code)

FMBH

NASDAQ Global Market


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


☐

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


Large accelerated filer [  ]☐

Accelerated filer [X]☒

Non-accelerated filer [  ]

(Do not check if a smaller reporting company)
☐

Smaller reporting company [  ]

☐

Emerging growth company [  ]☐


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


☐

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


As of November 6, 2017, 12,618,026May 9, 2023, 20,528,944 common shares, $4.00 par value, were outstanding.


1







PART I


ITEM 1.  FINANCIAL STATEMENTS   
First Mid-Illinois Bancshares, Inc.   
Condensed Consolidated Balance Sheets(Unaudited)  
(In thousands, except share data)September 30, 2017 December 31, 2016
Assets   
Cash and due from banks:   
Non-interest bearing$62,591
 $57,988
Interest bearing6,562
 79,014
Federal funds sold490
 38,900
Cash and cash equivalents69,643
 175,902
Certificates of deposit investments1,685
 14,643
Investment securities: 
  
Available-for-sale, at fair value621,204
 619,848
Held-to-maturity, at amortized cost (estimated fair value of $69,137 and $73,096 at September 30, 2017 and December 31, 2016, respectively)69,306
 74,231
Loans held for sale2,079
 1,175
Loans1,865,483
 1,824,817
Less allowance for loan losses(18,589) (16,753)
Net loans1,846,894
 1,808,064
Interest receivable10,876
 10,553
Other real estate owned2,229
 1,982
Premises and equipment, net38,638
 40,292
Goodwill, net60,150
 57,791
Intangible assets, net11,181
 12,832
Bank owned life insurance41,601
 41,318
Other assets18,970
 25,904
Total assets$2,794,456
 $2,884,535
Liabilities and Stockholders’ Equity 
  
Deposits: 
  
Non-interest bearing$430,036
 $471,206
Interest bearing1,787,441
 1,858,681
Total deposits2,217,477
 2,329,887
Securities sold under agreements to repurchase116,360
 185,763
Interest payable552
 535
FHLB borrowings87,052
 40,094
Other borrowings31,250
 18,063
Junior subordinated debentures23,980
 23,917
Other liabilities6,354
 5,603
Total liabilities2,483,025
 2,603,862
Stockholders’ Equity: 
  
Common stock, $4 par value; authorized 18,000,000 shares; issued 13,167,769 and 13,020,742 shares in 2017 and 2016, respectively54,671
 54,083
Additional paid-in capital163,067
 158,671
Retained earnings104,281
 86,216
Deferred compensation2,987
 3,201
Accumulated other comprehensive income (loss)1,999
 (5,761)
Less treasury stock at cost, 549,743 shares in 2017 and 2016(15,574) (15,737)
Total stockholders’ equity311,431
 280,673
Total liabilities and stockholders’ equity$2,794,456
 $2,884,535

ITEM 1. FINANCIAL STATEMENTS

First Mid Bancshares, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data)

 

March 31, 2023

 

 

December 31, 2022

 

Assets

 

 

 

 

 

 

Cash and due from banks:

 

 

 

 

 

 

Non-interest bearing

 

$

151,845

 

 

$

138,412

 

Interest bearing

 

 

9,391

 

 

 

6,394

 

Federal funds sold

 

 

7,898

 

 

 

7,627

 

Cash and cash equivalents

 

 

169,134

 

 

 

152,433

 

Certificates of deposit

 

 

1,715

 

 

 

1,470

 

Investment securities:

 

 

 

 

 

 

Available-for-sale, at fair value (amortized cost of $1,406,923 and $1,432,372 at March 31, 2023 and December 31, 2022, respectively)

 

 

1,212,698

 

 

 

1,218,985

 

Held-to-maturity, at amortized cost (estimated fair value of $2,979 and $2,954 at March 31, 2023 and December 31, 2022, respectively)

 

 

2,979

 

 

 

2,954

 

Equity securities, at fair value

 

 

362

 

 

 

311

 

Loans held for sale

 

 

999

 

 

 

338

 

Loans

 

 

4,759,632

 

 

 

4,825,874

 

Less allowance for credit losses

 

 

(58,223

)

 

 

(59,093

)

Net loans

 

 

4,701,409

 

 

 

4,766,781

 

Interest receivable

 

 

28,729

 

 

 

28,357

 

Other real estate owned

 

 

4,024

 

 

 

4,261

 

Premises and equipment, net

 

 

90,178

 

 

 

90,473

 

Goodwill

 

 

140,412

 

 

 

140,412

 

Intangible assets, net

 

 

27,961

 

 

 

29,485

 

Bank owned life insurance

 

 

151,366

 

 

 

151,756

 

Right of use lease assets

 

 

15,092

 

 

 

15,774

 

Deferred tax asset, net

 

 

66,698

 

 

 

72,254

 

Other assets

 

 

69,094

 

 

 

68,171

 

Total assets

 

$

6,682,850

 

 

$

6,744,215

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Non-interest bearing

 

$

1,262,181

 

 

$

1,256,514

 

Interest bearing

 

 

3,768,597

 

 

 

4,000,487

 

Total deposits

 

 

5,030,778

 

 

 

5,257,001

 

Securities sold under agreements to repurchase

 

 

228,664

 

 

 

221,414

 

Interest payable

 

 

4,732

 

 

 

3,346

 

FHLB borrowings

 

 

595,021

 

 

 

465,071

 

Junior subordinated debentures, net

 

 

19,406

 

 

 

19,364

 

Subordinated debt, net

 

 

94,593

 

 

 

94,553

 

Lease liabilities

 

 

15,353

 

 

 

16,035

 

Other liabilities

 

 

32,438

 

 

 

34,276

 

Total liabilities

 

 

6,020,985

 

 

 

6,111,060

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock ($4 par value; authorized 30,000,000 shares; issued 21,158,977 and 21,091,466 shares in 2023 and 2022, respectively; outstanding 20,519,717 and 20,452,376 shares in 2023 and 2022, respectively)

 

 

86,636

 

 

 

86,366

 

Additional paid-in capital

 

 

428,283

 

 

 

427,001

 

Retained earnings

 

 

303,768

 

 

 

289,284

 

Deferred compensation

 

 

963

 

 

 

2,064

 

Accumulated other comprehensive loss

 

 

(137,901

)

 

 

(151,507

)

Less treasury stock, at cost (639,260 shares in 2023 and 639,090 shares in 2022)

 

 

(19,884

)

 

 

(20,053

)

Total stockholders’ equity

 

 

661,865

 

 

 

633,155

 

Total liabilities and stockholders’ equity

 

$

6,682,850

 

 

$

6,744,215

 

See accompanying notes to unaudited condensed consolidated financial statements.



2






First Mid-Illinois Bancshares, Inc.   
Condensed Consolidated Statements of Income (unaudited) 
(In thousands, except per share data)Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
Interest income:       
Interest and fees on loans$20,385
 $15,294
 $61,337
 $42,496
Interest on investment securities4,179
 3,229
 12,585
 9,622
Interest on certificates of deposit investments9
 78
 41
 234
Interest on federal funds sold1
 7
 62
 8
Interest on deposits with other financial institutions40
 15
 217
 125
Total interest income24,614
 18,623
 74,242
 52,485
Interest expense: 
  
  
  
Interest on deposits1,028
 623
 2,840
 1,777
Interest on securities sold under agreements to repurchase51
 23
 137
 62
Interest on FHLB borrowings283
 150
 602
 465
Interest on other borrowings143
 42
 385
 45
Interest on subordinated debentures236
 162
 680
 456
Total interest expense1,741
 1,000
 4,644
 2,805
Net interest income22,873
 17,623
 69,598
 49,680
Provision for loan losses1,489
 1,081
 5,051
 1,927
Net interest income after provision for loan losses21,384
 16,542
 64,547
 47,753
Other income: 
  
  
  
Trust revenues925
 774
 2,696
 2,549
Brokerage commissions536
 526
 1,550
 1,440
Insurance commissions670
 738
 3,148
 2,806
Service charges1,758
 1,824
 5,160
 4,977
Securities gains, net254
 466
 589
 1,130
Mortgage banking revenue, net347
 382
 875
 715
ATM / debit card revenue1,595
 1,457
 4,828
 4,418
Bank owned life insurance792
 201
 1,355
 384
Other784
 530
 2,925
 1,582
Total other income7,661
 6,898
 23,126
 20,001
Other expense: 
  
  
  
Salaries and employee benefits9,648
 7,844
 29,685
 23,293
Net occupancy and equipment expense3,129
 2,864
 9,378
 8,389
Net other real estate owned expense385
 32
 530
 23
FDIC insurance210
 294
 679
 841
Amortization of intangible assets545
 455
 1,651
 1,312
Stationery and supplies168
 221
 539
 612
Legal and professional871
 713
 2,596
 2,414
Marketing and donations338
 285
 909
 1,486
Other2,618
 2,612
 9,102
 6,264
Total other expense17,912
 15,320
 55,069
 44,634
Income before income taxes11,133
 8,120
 32,604
 23,120
Income taxes3,538
 2,812
 10,545
 8,077
Net income7,595
 5,308
 22,059
 15,043
Dividends on preferred shares—
 —
 —
 825
Net income available to common stockholders$7,595
 $5,308
 $22,059
 $14,218
Per share data: 
  
  
  
Basic net income per common share available to common stockholders$0.61
 $0.51
 $1.76
 $1.52
Diluted net income per common share available to common stockholders$0.61
 $0.51
 $1.76
 $1.50
Cash dividends declared per common share$—
 $0.16
 $0.32
 $0.46

First Mid Bancshares, Inc.

Condensed Consolidated Statements of Income (unaudited)

(In thousands, except per share data)

 

 

Three months ended March 31,

 

(In thousands, except per share data)

 

2023

 

 

2022

 

Interest income:

 

 

 

 

 

 

Interest and fees on loans

 

$

56,236

 

 

$

39,908

 

Interest on investment securities

 

 

7,127

 

 

 

7,170

 

Interest on certificates of deposit investments

 

 

14

 

 

 

12

 

Interest on federal funds sold

 

 

85

 

 

 

 

Interest on deposits with other financial institutions

 

 

209

 

 

 

55

 

Total interest income

 

 

63,671

 

 

 

47,145

 

Interest expense:

 

 

 

 

 

 

Interest on deposits

 

 

12,767

 

 

 

2,148

 

Interest on securities sold under agreements to repurchase

 

 

1,463

 

 

 

67

 

Interest on FHLB borrowings

 

 

4,874

 

 

 

276

 

Interest on other borrowings

 

 

9

 

 

 

 

Interest on junior subordinated debentures

 

 

379

 

 

 

146

 

Interest on subordinated debentures

 

 

988

 

 

 

986

 

Total interest expense

 

 

20,480

 

 

 

3,623

 

Net interest income

 

 

43,191

 

 

 

43,522

 

Provision for credit losses

 

 

(817

)

 

 

2,952

 

Net interest income after provision for credit losses

 

 

44,008

 

 

 

40,570

 

Other income:

 

 

 

 

 

 

Wealth management revenues

 

 

5,514

 

 

 

5,975

 

Insurance commissions

 

 

8,480

 

 

 

7,104

 

Service charges

 

 

2,203

 

 

 

2,056

 

Securities losses, net

 

 

(46

)

 

 

—

 

Mortgage banking revenue, net

 

 

150

 

 

 

444

 

ATM / debit card revenue

 

 

3,083

 

 

 

2,898

 

Bank owned life insurance

 

 

1,641

 

 

 

844

 

Other

 

 

1,454

 

 

 

1,767

 

Total other income

 

 

22,479

 

 

 

21,088

 

Other expense:

 

 

 

 

 

 

Salaries and employee benefits

 

 

26,071

 

 

 

24,302

 

Net occupancy and equipment expense

 

 

6,005

 

 

 

6,155

 

Net other real estate owned expense

 

 

133

 

 

 

(33

)

FDIC insurance

 

 

463

 

 

 

426

 

Amortization of intangible assets

 

 

1,522

 

 

 

1,522

 

Stationery and supplies

 

 

292

 

 

 

311

 

Legal and professional

 

 

1,690

 

 

 

1,734

 

ATM / debit card

 

 

1,223

 

 

 

1,078

 

Marketing and donations

 

 

654

 

 

 

873

 

Other

 

 

3,524

 

 

 

4,020

 

Total other expense

 

 

41,577

 

 

 

40,388

 

Income before income taxes

 

 

24,910

 

 

 

21,270

 

Income taxes

 

 

5,730

 

 

 

4,654

 

Net income

 

$

19,180

 

 

$

16,616

 

Per share data:

 

 

 

 

 

 

Basic net income per common share

 

$

0.94

 

 

$

0.86

 

Diluted net income per common share

 

 

0.93

 

 

 

0.86

 

Cash dividends declared per common share

 

 

0.230

 

 

 

0.220

 

See accompanying notes to unaudited condensed consolidated financial statements.


3






First Mid-Illinois Bancshares, Inc.       
Condensed Consolidated Statements of Comprehensive Income (unaudited)   
(in thousands)Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
Net income$7,595
 $5,308
 $22,059
 $15,043
Other Comprehensive Income 
  
  
  
Unrealized gains (losses) on available-for-sale securities, net of taxes of $327 and $(690) for three months ended September 30, 2017 and 2016, respectively and $(5,154) and $(3,698) for nine months ended September 30, 2017 and 2016, respectively.(512) 1,082
 8,068
 5,792
Amortized holding losses on held-to-maturity securities transferred from available-for-sale, net of taxes of $(11) for three months ended September 30, 2017 and 2016, and $(32) and $(161) for nine months ended September 30, 2017 and 2016, respectively.
16
 16
 51
 251
Less: reclassification adjustment for realized gains included in net income, net of taxes of $99 and $182 for three months ended September 30, 2017 and 2016, respectively and $230 and $440 for nine months ended September 30, 2017 and 2016, respectively.(155) (284) (359) (690)
Other comprehensive income (loss), net of taxes(651) 814
 7,760
 5,353
Comprehensive income$6,944
 $6,122
 $29,819
 $20,396

First Mid Bancshares, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)

 

 

Three months ended March 31,

 

(In thousands)

 

2023

 

 

2022

 

Net income

 

$

19,180

 

 

$

16,616

 

Other comprehensive income/(loss)

 

 

 

 

 

 

Unrealized gains (losses) on available-for-sale securities, net of taxes of ($5,544) and $29,898 for three months ended March 31, 2023 and 2022, respectively

 

 

13,573

 

 

 

(73,197

)

Less: reclassification adjustment for realized gains (losses) included in net income, net of taxes (benefit) of ($13) and $0 for three months ended March 31, 2023 and 2022, respectively

 

 

(33

)

 

 

—

 

Other comprehensive income/(loss), net of taxes

 

 

13,606

 

 

 

(73,197

)

Comprehensive income/(loss)

 

$

32,786

 

 

$

(56,581

)

See accompanying notes to unaudited condensed consolidated financial statements.




4






First Mid-Illinois Bancshares, Inc. 
Condensed Consolidated Statements of Cash Flows (unaudited)Nine months ended September 30,
(In thousands)2017 2016
Cash flows from operating activities:   
Net income$22,059
 $15,043
Adjustments to reconcile net income to net cash provided by operating activities: 
  
Provision for loan losses5,051
 1,927
Depreciation, amortization and accretion, net6,241
 5,592
Change in cash surrender value of bank owned life insurance(844) (384)
Stock-based compensation expense300
 268
Gains on investment securities, net(589) (1,130)
Loss (gain) on sales of other real property owned, net349
 (5)
Donation of building—
 653
Loss on write down of fixed assets337
 26
Gains on sale of loans held for sale, net(809) (805)
Decrease in accrued interest receivable(323) (347)
Increase (decrease) in accrued interest payable38
 (36)
Origination of loans held for sale(45,076) (57,199)
Proceeds from sale of loans held for sale44,981
 55,388
Decrease (increase) in other assets2,475
 (2,713)
Decrease in other liabilities(1,421) (1,036)
Net cash provided by operating activities32,769
 15,242
Cash flows from investing activities: 
  
Proceeds from maturities of certificates of deposit investments12,958
 13,618
Purchases of certificates of deposit investments—
 (12,958)
Proceeds from sales of securities available-for-sale96,184
 68,726
Proceeds from maturities of securities available-for-sale52,894
 55,500
Proceeds from maturities of securities held-to-maturity—
 91,899
Purchases of securities available-for-sale(134,807) (84,102)
Purchases of securities held-to-maturity—
 (71,557)
Net increase in loans(49,198) (84,432)
Sale of premises and equipment—
 147
Purchases of premises and equipment(1,304) (449)
Proceeds from sales of other real property owned5,356
 488
Investment in bank owned life insurance—
 (25,000)
Cash received related to acquisition, net of cash and cash equivalents acquired—
 36,774
Net cash used in investing activities(17,917) (11,346)
Cash flows from financing activities:   
Net decrease in deposits(112,410) (3,996)
Increase in federal funds purchased20,000
 —
Decrease in repurchase agreements(69,403) (24,673)
Proceeds from FHLB advances52,000
 20,000
Repayment of FHLB advances(5,000) (5,000)
Proceeds from short-term debt—
 7,000
Proceeds from long-term debt—
 15,000
Repayment of other debt(6,813) —
Proceeds from issuance of common stock4,195
 97
Direct expenses related to capital transactions(213) (230)
Dividends paid on preferred stock—
 (1,286)
Dividends paid on common stock(3,467) (3,555)
Net cash (used in) provided by financing activities(121,111) 3,357
(Decrease) increase in cash and cash equivalents(106,259) 7,253
Cash and cash equivalents at beginning of period175,902
 115,784
Cash and cash equivalents at end of period$69,643
 $123,037

First Mid Bancshares, Inc.

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

For the three months ended March 31, 2023 and 2022

(In thousands)

 

Common
Stock

 

 

Additional
Paid-In-
Capital

 

 

Retained
Earnings

 

 

Deferred
Compensation

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Treasury
Stock

 

 

Total

 

December 31, 2022

 

$

86,366

 

 

$

427,001

 

 

$

289,284

 

 

$

2,064

 

 

$

(151,507

)

 

$

(20,053

)

 

$

633,155

 

Net income

 

 

—

 

 

 

—

 

 

 

19,180

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

19,180

 

Other comprehensive income, net tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

13,606

 

 

 

—

 

 

 

13,606

 

Cash dividends on common stock (.230/share)

 

 

—

 

 

 

—

 

 

 

(4,696

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(4,696

)

Issuance of 55,198 restricted shares pursuant to 2017 stock incentive plan

 

 

221

 

 

 

1,423

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,644

 

Issuance of 4,350 common shares pursuant to 2017 stock incentive plan

 

 

17

 

 

 

103

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

120

 

Issuance of 7,963 common shares pursuant to the employee stock purchase plan

 

 

32

 

 

 

184

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

216

 

Purchase of 170 shares of treasury stock

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(5

)

 

 

(5

)

Deferred compensation

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1,355

)

 

 

—

 

 

 

174

 

 

 

(1,181

)

Grant of restricted units pursuant to 2017 stock incentive plan

 

 

—

 

 

 

1,048

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,048

 

Release of restricted units pursuant to 2017 stock incentive plan

 

 

—

 

 

 

(1,529

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1,529

)

Vested restricted shares/units compensation expense

 

 

—

 

 

 

53

 

 

 

—

 

 

 

254

 

 

 

—

 

 

 

—

 

 

 

307

 

March 31, 2023

 

$

86,636

 

 

$

428,283

 

 

$

303,768

 

 

$

963

 

 

$

(137,901

)

 

$

(19,884

)

 

$

661,865

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5






First Mid-Illinois Bancshares, Inc. 
Condensed Consolidated Statements of Cash Flows (unaudited)Nine months ended September 30,
(In thousands)2017 2016
    
Supplemental disclosures of cash flow information   
Cash paid during the period for:   
Interest$4,627
 $2,568
Income taxes7,969
 9,335
Supplemental disclosures of noncash investing and financing activities 
  
Loans transferred to other real estate owned5,317
 115
Dividends reinvested in common stock527
 1,052
Net tax benefit related to option and deferred compensation plans221
 140
Supplemental disclosure of purchase of capital stock of First Clover Leaf   
Fair value of assets acquired  $668,905
Consideration paid:   
     Cash paid  22,545
     Common stock issued  65,926
Total consideration paid  88,471
Fair value of liabilities assumed  $580,434

(In thousands)

 

Common
Stock

 

 

Additional
Paid-In-
Capital

 

 

Retained
Earnings

 

 

Deferred
Compensation

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Treasury
Stock

 

 

Total

 

December 31, 2021

 

$

76,835

 

 

$

340,419

 

 

$

234,162

 

 

$

2,517

 

 

$

(831

)

 

$

(19,208

)

 

$

633,894

 

Net income

 

 

—

 

 

 

—

 

 

 

16,616

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

16,616

 

Other comprehensive loss, net tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(73,197

)

 

 

—

 

 

 

(73,197

)

Cash dividends on common stock (.220/share)

 

 

—

 

 

 

—

 

 

 

(3,973

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(3,973

)

Issuance of 1,939 common shares pursuant to the deferred compensation plan

 

 

8

 

 

 

75

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

83

 

Issuance of 54,834 restricted shares pursuant to the 2017 stock incentive plan

 

 

219

 

 

 

2,040

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,259

 

Issuance of 4,950 common shares pursuant to the 2017 stock incentive plan

 

 

20

 

 

 

179

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

199

 

Issuance of 3,149 common shares pursuant to the employee stock purchase plan

 

 

13

 

 

 

111

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

124

 

Issuance of 2,292,270 common shares pursuant to acquisition of Delta Banshares, Co., net proceeds

 

 

9,169

 

 

 

83,003

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

92,172

 

Issuance costs pursuant to acquisition of Delta Bancshares Company

 

 

—

 

 

 

(31

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(31

)

Purchase of 262 treasury shares

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(11

)

 

 

(11

)

Deferred compensation

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(2,518

)

 

 

—

 

 

 

(53

)

 

 

(2,571

)

Grant of restricted units pursuant to 2017 stock incentive plan

 

 

—

 

 

 

1,529

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,529

 

Release of restricted units pursuant to 2017 stock incentive plan

 

 

—

 

 

 

(1,216

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1,216

)

Vested restricted shares/units compensation expense

 

 

—

 

 

 

39

 

 

 

—

 

 

 

469

 

 

 

—

 

 

 

—

 

 

 

508

 

March 31, 2022

 

$

86,264

 

 

$

426,148

 

 

$

246,805

 

 

$

468

 

 

$

(74,028

)

 

$

(19,272

)

 

$

666,385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.


6






First Mid Bancshares, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

 

 

Three months ended March 31,

 

(In thousands)

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

19,180

 

 

$

16,616

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Provision for credit losses

 

 

(817

)

 

 

2,952

 

Depreciation, amortization and accretion, net

 

 

3,485

 

 

 

3,777

 

Change in cash surrender value of bank owned life insurance

 

 

(926

)

 

 

(844

)

Gain on redemption of bank owned life insurance

 

 

(715

)

 

 

—

 

Stock-based compensation expense

 

 

307

 

 

 

508

 

Operating lease payments

 

 

(781

)

 

 

(722

)

Loss on investment securities, net

 

 

46

 

 

 

—

 

Loss (gain) on sales and write downs of other real estate owned, net

 

 

71

 

 

 

(210

)

Loss on sale of other assets

 

 

—

 

 

 

4

 

Gain on sale of loans held for sale, net

 

 

(207

)

 

 

(415

)

Increase in accrued interest receivable

 

 

(372

)

 

 

(725

)

Increase in accrued interest payable

 

 

1,378

 

 

 

745

 

Origination of loans held for sale

 

 

(12,191

)

 

 

(18,931

)

Proceeds from sale of loans held for sale

 

 

11,737

 

 

 

20,057

 

Decrease (increase) in other investment

 

 

—

 

 

 

(487

)

Decrease in other assets

 

 

1,867

 

 

 

2,616

 

Decrease in other liabilities

 

 

(1,757

)

 

 

(846

)

Net cash provided by operating activities

 

 

20,305

 

 

 

24,133

 

Cash flows from investing activities:

 

 

 

 

 

 

Proceeds from maturities of certificates of deposit investments

 

 

—

 

 

 

490

 

Purchases of certificates of deposit investments

 

 

(245

)

 

 

—

 

Proceeds from sales of securities available-for-sale

 

 

6,483

 

 

 

—

 

Proceeds from maturities of securities available-for-sale

 

 

19,250

 

 

 

39,854

 

Proceeds from maturities of securities held-to-maturity

 

 

—

 

 

 

5,000

 

Purchases of securities available-for-sale

 

 

(1,063

)

 

 

(7,806

)

Purchase of securities held-to-maturity

 

 

(25

)

 

 

—

 

Net decrease (increase) in loans

 

 

65,541

 

 

 

(41,434

)

Purchases of premises and equipment

 

 

(941

)

 

 

(27

)

Proceeds from sales of other real property owned

 

 

734

 

 

 

475

 

Net cash provided by acquisition

 

 

—

 

 

 

67,323

 

Net cash provided by investing activities

 

 

89,734

 

 

 

63,875

 

Cash flows from financing activities:

 

 

 

 

 

 

Net decrease in deposits

 

 

(226,223

)

 

 

(29,558

)

Increase in repurchase agreements

 

 

7,250

 

 

 

5,535

 

Proceeds from FHLB advances

 

 

170,000

 

 

 

20,000

 

Repayment of FHLB advances

 

 

(40,000

)

 

 

(25,000

)

Proceeds from issuance of common stock

 

 

336

 

 

 

406

 

Direct expenses related to capital transactions

 

 

—

 

 

 

(29

)

Purchase of treasury stock

 

 

(5

)

 

 

(11

)

Dividends paid on common stock

 

 

(4,696

)

 

 

(3,973

)

Net cash used in financing activities

 

 

(93,338

)

 

 

(32,630

)

Increase in cash and cash equivalents

 

 

16,701

 

 

 

55,378

 

Cash and cash equivalents at beginning of period

 

 

152,433

 

 

 

168,602

 

Cash and cash equivalents at end of period

 

$

169,134

 

 

$

223,980

 

See accompanying notes to unaudited condensed consolidated financial statements.

7

First Mid Bancshares, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

 

 

Three months ended March 31,

 

(In thousands)

 

2023

 

 

2022

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

19,094

 

 

$

2,503

 

Income taxes

 

 

(288

)

 

 

—

 

Supplemental disclosures of noncash investing and financing activities

 

 

 

 

 

 

Loans transferred to other real estate

 

$

648

 

 

$

198

 

Initial recognition of right-of-use assets

 

 

—

 

 

 

715

 

Initial recognition of lease liabilities

 

 

—

 

 

 

715

 

Supplemental disclosures of purchases of capital stock

 

 

 

 

 

 

Fair value of assets acquired

 

$

—

 

 

$

750,063

 

Consideration paid:

 

 

 

 

 

 

Cash paid

 

 

—

 

 

 

15,150

 

Common stock issued

 

 

—

 

 

 

92,172

 

Total consideration paid

 

 

—

 

 

 

107,322

 

Fair value of liabilities assumed

 

$

—

 

 

$

642,741

 

8

Notes to Condensed Consolidated Financial Statements

(unaudited)

(unaudited)

Note 1 -- Basis of Accounting and Consolidation


The unaudited condensed consolidated financial statements include the accounts of First Mid-IllinoisMid Bancshares, Inc. (“Company”) and its wholly-ownedwholly owned subsidiaries: First Mid-IllinoisMid Bank & Trust, N.A. (“First Mid Bank”), Mid-Illinois Data Services, Inc. (“MIDS”) and The Checkley Agency, Inc. doing business asFirst Mid Wealth Management Company, First Mid Insurance Group, Inc. (“First Mid Insurance”)., and First Mid Captive, Inc. All significant intercompany balances and transactions have been eliminated in consolidation. The financial information reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods ended September 30, 2017March 31, 2023 and 2016,2022, and all such adjustments are of a normal recurring nature. Certain amounts in the prior year’s consolidated financial statements may have been reclassified to conform to the September 30, 2017March 31, 2023 presentation and there was no impact on net income or stockholders’ equity. The results of the interim period ended September 30, 2017March 31, 2023 are not necessarily indicative of the results expected for the year ending December 31, 2017.2023. The Company operates as a one-segment entity for financial reporting purposes.


The 20162022 year-end consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.

The unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and do not include all of the information required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements and related footnote disclosures although the Company believes that the disclosures made are adequate to make the information not misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 20162022 Annual Report on Form 10-K.


Blackhawk Bancorp, Inc

On March 21, 2023, First Mid Bancshares, Inc. (“First Mid”) and Eagle Sub LLC, a newly formed Wisconsin limited liability company and wholly-owned subsidiary of First Mid (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Blackhawk Bancorp, Inc., a Wisconsin corporation (“Blackhawk”), pursuant to which, among other things, First Mid agreed to acquire 100% of the issued and outstanding shares of Blackhawk pursuant to a business combination whereby Blackhawk will merge with and into Merger Sub, whereupon the separate corporate existence of Blackhawk will cease and Merger Sub will continue as the surviving company and a wholly-owned subsidiary of First Mid (the “Merger”).

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, each share of common stock, par value $0.01 per share, of Blackhawk issued and outstanding immediately prior to the effective time of the Merger (other than shares held in treasury by Blackhawk and dissenting shares) will be converted into and become the right to receive 1.15 shares of common stock, par value $4.00 per share, of First Mid and cash in lieu of fractional shares, less any applicable taxes required to be withheld, and subject to certain potential adjustments. On an aggregate basis, the total consideration payable by First Mid at the closing of the Merger to Blackhawk’s shareholders and equity award holders is approximately 3,330,176 shares of First Mid common stock. Blackhawk’s outstanding stock equity awards will fully vest upon consummation of the Merger.

It is anticipated that Blackhawk’s wholly-owned bank subsidiary, Blackhawk Bank (“Blackhawk Bank”), will be merged with and into First Mid’s wholly-owned bank subsidiary, First Mid Bank & Trust, N.A. (“First Mid Bank”), at a date following completion of the Merger. At the time of the bank merger, Blackhawk Bank’s banking offices will become branches of First Mid Bank.

The Merger is anticipated to be completed in the third quarter of 2023 and is subject to the satisfaction of customary closing conditions in the Merger Agreement and the approval of the appropriate regulatory authorities.

Delta Bancshares Company

On July 28, 2021, the Company and Brock Sub LLC, a newly formed Delaware limited liability company and wholly-owned subsidiary of the Company (“Delta Merger Sub”), entered into an Agreement and Plan of Merger (the “Delta Merger Agreement”) with Delta Bancshares Company, a Missouri corporation (“Delta”), pursuant to which, among other things, the Company agreed to acquire 100% of the issued and outstanding shares of Delta pursuant to a business combination whereby Delta merged with and into Merger Sub, whereupon the separate corporate existence of Delta ceased and Merger Sub continued as the surviving company and a wholly-owned subsidiary of First Mid (the “Delta Merger”). The Delta Merger was completed on February 14, 2022.

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Delta Merger, each share of common stock, par value $10.00 per share, of Delta issued and outstanding immediately prior to the effective time of the Delta Merger (other than shares held in treasury by Delta) converted into and became the right to receive cash and shares of common stock, par value $4.00 per share, of the Company and cash in lieu of fractional shares, less any applicable taxes required to be withheld, and subject to certain potential adjustments. On an aggregate basis, the total consideration paid by the Company at the closing of the Delta Merger to Delta’s shareholders and option holders was approximately $15.15 million in cash and 2,292,270 shares of Company common

9

stock. Delta’s outstanding stock options vested upon consummation of the Delta Merger, and all outstanding Delta options that were unexercised prior to the effective time of the Delta Merger were cashed out.

Delta’s wholly owned bank subsidiary, Jefferson Bank, was merged with and into First Mid Bank during the second quarter of 2022. At the time of the bank merger, Jefferson Bank’s banking offices became branches of First Mid Bank.

Website


The Company maintains a website at www.firstmid.com. 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.


At-The-Market Program

On August 16, 2017,

General Litigation

The Company is subject to claims and lawsuits that arise primarily in the Company entered intoordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a Sales Agency Agreement, pursuant to whichmaterial adverse effect on the Company may sell, from time to time, up to an aggregateconsolidated financial position, results of $20 million of it's common stock. Shares of common stock are offered pursuant to the Company's shelf registration statement filed within the SEC. During the threeoperations and nine months ended September 30, 2017, the company sold 95,310 shares of common stock at the weighted average price of approximately $35.06, representing gross proceeds of $3.34 million and net proceeds of $3.28 million. As of September 30, 2017, approximately $16.66 million of common stock remained available for issuance under the At The Market program.


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%cash flows 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").Company.


On September 8, 2016, the effective time of the Merger, 25% of the shares of First Clover Leaf common stock issued and outstanding immediately prior to the effective time of the Merger converted into the right to receive $12.87 per share, for an approximate aggregate total of $22,545,000, and 75% of the shares of 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 $4.00 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 Merger.



7





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


A

Following the stockholders’ approval at the 2021 annual meeting of the Company, a maximum of 149,983399,983 shares of common stock may be issued under the SI Plan. There have been no stock options awarded under any Company plan since 2008. The Company has awarded 11,47360,550 and 13,91226,000 shares of restricted stock during the three months ended March 31, 2023 and 2022, respectively, and 37,900 and 37,150 restricted stock units during 2017the three months ended March 31, 2023 and 2016, respectively,2022, respectively.

Employee Stock Purchase Plan

At the Annual Meeting of Stockholders held April 25, 2018, the stockholders approved the First Mid-Illinois Bancshares, Inc. Employee Stock Purchase Plan (“ESPP”). The ESPP is intended to promote the interests of the Company by providing eligible employees with the opportunity to purchase shares of common stock of the Company at a 15% discount through payroll deductions. The ESPP is also intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code.

A maximum of 600,000 shares of common stock may be issued under the 2007 Stock Incentive Plan.ESPP. During the three months ended March 31, 2023 and 2022, 7,963 shares and 3,149 shares, respectively, were issued pursuant to the ESPP.


Captive Insurance Company

First Mid Captive, Inc. (the “Captive"), a wholly owned subsidiary of the Company which was formed and began operations in December 2019, is a Nevada-based captive insurance company. The Captive insures against certain risks unique to operations of the Company and its subsidiaries for which insurance may not be currently available or economically feasible in today's insurance marketplace. The Captive pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves. The Captive is subject to regulations of the State of Nevada and undergoes periodic examinations by the Nevada Division of Insurance. It has elected to be taxed under Section 831(b) of the Internal Revenue Code. Pursuant to Section 831(b), if gross premiums do not exceed $2,650,000, then the Captive is taxable solely on its investment income. The Captive is included in the Company's consolidated financial statements and its federal income return.

Bank Owned Life Insurance

First Mid Bank has purchased life insurance policies on certain senior management. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts that are probable at settlement.

10

Revenue Recognition

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

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

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

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

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

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

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

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

Accumulated Other Comprehensive Income (Loss)

Loss


The components of accumulated other comprehensive income (loss)loss included in stockholders’ equity as of September 30, 2017March 31, 2023 and December 31, 20162022 are as follows (in thousands):

Unrealized Losses on Securities

March 31, 2023

Net unrealized losses on securities available-for-sale

$

(194,225

)

Tax benefit

56,324

Balance at March 31, 2023

$

(137,901

)

December 31, 2022

Net unrealized losses on securities available-for-sale

$

(213,387

)

Tax benefit

61,880

Balance at December 31, 2022

$

(151,507

)

11


 
Unrealized Gain (Loss) on
Securities
 Securities with Other-Than-Temporary Impairment Losses Total
September 30, 2017     
Net unrealized gains on securities available-for-sale$3,817
 $—
 $3,817
Unamortized losses on held-to-maturity securities transferred from available-for-sale(310) —
 (310)
Securities with other-than-temporary impairment losses—
 (232) (232)
Tax benefit (expense)(1,366) 90
 (1,276)
Balance at September 30, 2017$2,141
 $(142) $1,999
December 31, 2016     
Net unrealized losses on securities available-for-sale$(7,649) $—
 $(7,649)
Unamortized losses on held-to-maturity securities transferred from available-for-sale(394) —
 (394)
Securities with other-than-temporary impairment losses—
 (1,398) (1,398)
Tax benefit3,135
 545
 3,680
Balance at December 31, 2016$(4,908) $(853) $(5,761)










8





Amounts reclassified from accumulated other comprehensive incomeloss and the affected line items in the statements of income during the ninethree months ended September 30, 2017March 31, 2023 and 2016,2022, were as follows (in thousands):

 

 

Amounts Reclassified from
Other Comprehensive Income (Loss)

 

 

 

 

 

Three months ended March 31,

 

 

 

 

 

2023

 

 

2022

 

 

Affected Line Item in the Statements of Income

Realized losses on available-for-sale securities

 

$

(46

)

 

$

—

 

 

Securities (loss) gains, net

Tax effect

 

 

13

 

 

 

—

 

 

Income taxes

Total reclassifications out of accumulated other comprehensive income (loss)

 

$

(33

)

 

$

—

 

 

Net reclassified amount

 Amounts Reclassified from Other Comprehensive IncomeAffected Line Item in the Statements of Income
 
 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
Realized gains on available-for-sale securities$254
 $466
 $589
 $1,130
Securities gains, net
        (Total reclassified amount before tax)
 (99) (182) (230) (440)Income taxes
Total reclassifications out of accumulated other comprehensive income$155
 $284
 $359
 $690
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 Compensation2022-02, Financial Instruments-Credit Losses (Topic 718)326): Scope of Modification ("Troubled Debt Restructurings and Vintage Disclosures (“ASU 2017-09"2022-02”). In May 2017,March 2022, FASB issued ASU 2017-09. This2022-02. The amendments in this update provideseliminate the accounting guidance on determining which changesand related disclosures for TDRs by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty and requiring an entity to disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases within the terms and conditionsscope of share-based payment awards require the application of modification accounting under Topic 718. Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost.

The guidance isamendments in this update were effective for public companies for fiscal years andbeginning after December 15, 2022, including interim periods within those fiscal years beginning after December 15, 2017. Earlyand are applied prospectively, except with respect to the recognition and measurement of TDRs, where an entity has the option to apply a modified retrospective transition method. The adoption is permitted, including adoptionof this accounting guidance resulted 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 onupdated disclosures within 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

9





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 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 2016-08, 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, 2017. 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 continues to evaluate the impact 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 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, 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, above, for the effective dates.



10





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 months ended March 31, 2023 and nine-month period ended September 30, 2017 and 20162022 were as follows:

 

 

Three months ended March 31,

 

 

 

2023

 

 

2022

 

Basic net income per common share

 

 

 

 

 

 

Available to common stockholders:

 

 

 

 

 

 

Net income

 

$

19,180,000

 

 

$

16,616,000

 

Weighted average common shares outstanding

 

 

20,492,254

 

 

 

19,295,860

 

Basic earnings per common share

 

$

0.94

 

 

$

0.86

 

 

 

 

 

 

 

Diluted net income per common share

 

 

 

 

 

 

Available to common stockholders:

 

 

 

 

 

 

Net income applicable to diluted earnings per share

 

$

19,180,000

 

 

$

16,616,000

 

Weighted average common shares outstanding

 

 

20,492,254

 

 

 

19,295,860

 

Dilutive potential common shares: restricted stock awarded

 

 

71,718

 

 

 

62,597

 

Diluted weighted average common shares outstanding

 

 

20,563,972

 

 

 

19,358,457

 

Diluted earnings per common share

 

$

0.93

 

 

$

0.86

 


 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
Basic Net Income per Common Share       
Available to Common Stockholders:       
Net income$7,595,000
 $5,308,000
 $22,059,000
 $15,043,000
Preferred stock dividends—
 —
 —
 (825,000)
Net income available to common stockholders7,595,000
 5,308,000
 22,059,000
 14,218,000
Weighted average common shares outstanding12,528,674 10,497,072 12,498,913 9,372,547
Basic earnings per common share$0.61
 $0.51
 $1.76
 $1.52
Diluted Net Income per Common Share       
Available to Common Stockholders:       
Net income available to common stockholders$7,595,000
 $5,308,000
 $22,059,000
 $14,218,000
Effect of assumed preferred stock conversion—
 —
 —
 825,000
Net income applicable to diluted earnings per share7,595,000
 5,308,000
 22,059,000
 15,043,000
Weighted average common shares outstanding12,528,674
 10,497,072
 12,498,913
 9,372,547
Dilutive potential common shares:       
Assumed conversion of stock options6,299
 1,742
 6,827
 1,945
Restricted stock awarded836
 5,232
 836
 5,232
Assumed conversion of preferred stock—
 —
 —
 677,674
Dilutive potential common shares7,135
 6,974
 7,663
 684,851
Diluted weighted average common shares outstanding12,535,809
 10,504,046
 12,506,576
 10,057,398
Diluted earnings per common share$0.61
 $0.51
 $1.76
 $1.50


The following

There were no shares were not considered inexcluded when computing diluted earnings per share for the three months ended March 31, 2023 and nine-month periods ended September 30, 2017 and 20162022 because they were anti-dilutive:anti-dilutive.

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


11



12



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 September 30, 2017March 31, 2023 and December 31, 20162022 were as follows (in thousands):

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
(Losses)

 

 

Fair Value

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. government corporations and agencies

 

$

253,228

 

 

$

5

 

 

$

(29,688

)

 

$

223,545

 

Obligations of states and political subdivisions

 

 

339,808

 

 

 

158

 

 

 

(54,969

)

 

 

284,997

 

Mortgage-backed securities: GSE residential

 

 

730,036

 

 

 

3

 

 

 

(105,767

)

 

 

624,272

 

Other securities

 

 

83,851

 

 

 

24

 

 

 

(3,991

)

 

 

79,884

 

Total available-for-sale

 

$

1,406,923

 

 

$

190

 

 

$

(194,415

)

 

$

1,212,698

 

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

Other investments

 

$

2,979

 

 

$

—

 

 

$

—

 

 

$

2,979

 

Total held-to-maturity

 

$

2,979

 

 

$

—

 

 

$

—

 

 

$

2,979

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. government corporations and agencies

 

$

252,934

 

 

$

—

 

 

$

(32,407

)

 

$

220,527

 

Obligations of states and political subdivisions

 

 

347,409

 

 

 

134

 

 

 

(59,845

)

 

 

287,698

 

Mortgage-backed securities: GSE residential

 

 

744,636

 

 

 

3

 

 

 

(116,759

)

 

 

627,880

 

Other securities

 

 

87,393

 

 

 

6

 

 

 

(4,519

)

 

 

82,880

 

Total available-for-sale

 

$

1,432,372

 

 

$

143

 

 

$

(213,530

)

 

$

1,218,985

 

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

Other investments

 

$

2,954

 

 

$

—

 

 

$

—

 

 

$

2,954

 

Total held-to-maturity

 

$

2,954

 

 

$

—

 

 

$

—

 

 

$

2,954

 

 Amortized Cost Gross Unrealized Gains Gross Unrealized (Losses) Fair Value
September 30, 2017       
Available-for-sale:       
U.S. Treasury securities and obligations of U.S. government corporations & agencies$126,931
 $484
 $(1,014) $126,401
Obligations of states and political subdivisions169,526
 3,486
 (486) 172,526
Mortgage-backed securities: GSE residential314,195
 2,223
 (1,061) 315,357
Trust preferred securities2,933
 —
 (232) 2,701
Other securities4,034
 185
 —
 4,219
Total available-for-sale$617,619
 $6,378
 $(2,793) $621,204
Held-to-maturity:       
U.S. Treasury securities and obligations of U.S. government corporations & agencies$69,306
 $328
 $(497) $69,137
        
December 31, 2016       
Available-for-sale:       
U.S. Treasury securities and obligations of U.S. government corporations & agencies$138,819
 $13
 $(2,508) $136,324
Obligations of states and political subdivisions164,163
 1,346
 (2,804) 162,705
Mortgage-backed securities: GSE residential318,829
 531
 (4,369) 314,991
Trust preferred securities3,050
 —
 (1,398) 1,652
Other securities4,034
 147
 (5) 4,176
Total available-for-sale$628,895
 $2,037
 $(11,084) $619,848
Held-to-maturity:       
U.S. Treasury securities and obligations of U.S. government corporations & agencies$74,231
 $203
 $(1,338) $73,096

Trust preferred

The Company also had $362,000 and $311,000 of equity securities, represents one trust preferred pooled security issued by First Tennessee Financial (“FTN”).at fair value, as of March 31, 2023 and December 31, 2022, respectively. The unrealizedCompany's held-to-maturity securities are annuities for which the risk of loss is minimal. As such, as of this security, which has a remaining maturity of twenty years, is primarily due toMarch 31, 2023, the Company did not record an allowance for credit losses on 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.

held-to-maturity securities.


Realized gains and losses resulting from sales of securities were as follows during the ninethree months endedSeptember 30, 2017 March 31, 2023 and 20162022 (in thousands):

 

 

Three months March 31,

 

 

 

2023

 

 

2022

 

Gross gains

 

$

6

 

 

$

—

 

Gross losses

 

 

(52

)

 

 

—

 

 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
Gross gains$394
 $446
 $746
 $1,130
Gross losses(140) —
 (157) —





12



13




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 September 30, 2017March 31, 2023 and the weighted average yield for each range of maturities (dollars in thousands):

 

 

One year
or less

 

 

After 1
through
5 years

 

 

After 5
through
10 years

 

 

After
ten years

 

 

Total

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. government corporations and agencies

 

$

172,917

 

 

$

40,859

 

 

$

9,769

 

 

$

—

 

 

$

223,545

 

Obligations of state and political subdivisions

 

 

18,652

 

 

 

74,899

 

 

 

190,220

 

 

 

1,226

 

 

 

284,997

 

Mortgage-backed securities: GSE residential

 

 

2,544

 

 

 

7,981

 

 

 

25,211

 

 

 

588,536

 

 

 

624,272

 

Other securities

 

 

19,266

 

 

 

59,821

 

 

 

797

 

 

 

—

 

 

 

79,884

 

Total available-for-sale investments

 

$

213,379

 

 

$

183,560

 

 

$

225,997

 

 

$

589,762

 

 

$

1,212,698

 

Weighted average yield

 

 

1.56

%

 

 

2.67

%

 

 

2.00

%

 

 

1.70

%

 

 

1.87

%

Full tax-equivalent yield

 

 

1.59

%

 

 

2.67

%

 

 

1.94

%

 

 

1.71

%

 

 

1.87

%

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other investments

 

$

—

 

 

$

—

 

 

$

—

 

 

$

2,979

 

 

$

2,979

 

Total held-to-maturity

 

$

—

 

 

$

—

 

 

$

—

 

 

$

2,979

 

 

$

2,979

 

Weighted average yield

 

 

—

%

 

 

—

%

 

 

—

%

 

 

—

%

 

 

—

%

Full tax-equivalent yield

 

 

—

%

 

 

—

%

 

 

—

%

 

 

—

%

 

 

—

%

 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$75,846
 $39,439
 $11,116
 $—
 $126,401
Obligations of state and political subdivisions19,153
 81,336
 70,371
 1,666
 172,526
Mortgage-backed securities: GSE residential423
 213,894
 101,040
 —
 315,357
Trust preferred securities—
 —
 —
 2,701
 2,701
Other securities—
 2,006
 2,038
 175
 4,219
Total available-for-sale investments$95,422
 $336,675
 $184,565
 $4,542
 $621,204
Weighted average yield2.23% 2.56% 2.68% 2.57% 2.55%
Full tax-equivalent yield2.65% 3.02% 3.47% 3.41% 3.10%
Held to Maturity:         
U.S. Treasury securities and obligations of U.S. government corporations and agencies$39,993
 $29,313
 $—
 $—
 $69,306
Weighted average yield1.76% 2.08% —% —% 1.90%
Full tax-equivalent yield1.76% 2.08% —% —% 1.90%

The weighted average yields are calculated based on the basis of the amortized cost and effective yields weighted for the scheduled maturity of each security. Tax-equivalent yields have been calculated using a 35%21% tax rate. With the exception of obligations of the U.S. Treasury and other U.S. government agencies and corporations, there were no investment securities of any single issuer, the book value of which exceeded 10%10% of stockholders' equity at September 30, 2017.


March 31, 2023.

Investment securities carried at approximately $463709 million and $509770 million at September 30, 2017March 31, 2023 and December 31, 2016,2022, respectively, were pledged to secure public deposits and repurchase agreements and for other purposes as permitted or required by law.



13





The following table presents the aging of gross unrealized losses and fair value by investment category as of September 30, 2017March 31, 2023 and December 31, 20162022 (in thousands):

 

 

Less than 12 months

 

 

12 months or more

 

 

Total

 

 

 

Fair
Value

 

 

Unrealized
Losses

 

 

Fair
Value

 

 

Unrealized
Losses

 

 

Fair
Value

 

 

Unrealized
Losses

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. government corporations and agencies

 

$

1,757

 

 

$

(19

)

 

$

220,714

 

 

$

(29,669

)

 

$

222,471

 

 

$

(29,688

)

Obligations of states and political subdivisions

 

 

45,880

 

 

 

(1,204

)

 

 

212,715

 

 

 

(53,765

)

 

 

258,595

 

 

 

(54,969

)

Mortgage-backed securities: GSE residential

 

 

12,887

 

 

 

(589

)

 

 

610,896

 

 

 

(105,178

)

 

 

623,783

 

 

 

(105,767

)

Other securities

 

 

13,483

 

 

 

(537

)

 

 

54,878

 

 

 

(3,454

)

 

 

68,361

 

 

 

(3,991

)

Total

 

$

74,007

 

 

$

(2,349

)

 

$

1,099,203

 

 

$

(192,066

)

 

$

1,173,210

 

 

$

(194,415

)

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. government corporations and agencies

 

$

57,007

 

 

$

(3,493

)

 

$

163,520

 

 

$

(28,914

)

 

$

220,527

 

 

$

(32,407

)

Obligations of states and political subdivisions

 

 

220,102

 

 

 

(43,221

)

 

 

45,419

 

 

 

(16,624

)

 

 

265,521

 

 

 

(59,845

)

Mortgage-backed securities: GSE residential

 

 

165,966

 

 

 

(19,859

)

 

 

461,446

 

 

 

(96,900

)

 

 

627,412

 

 

 

(116,759

)

Other securities

 

 

64,676

 

 

 

(3,675

)

 

 

6,698

 

 

 

(844

)

 

 

71,374

 

 

 

(4,519

)

Total

 

$

507,751

 

 

$

(70,248

)

 

$

677,083

 

 

$

(143,282

)

 

$

1,184,834

 

 

$

(213,530

)

14

 Less than 12 months 12 months or more Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
September 30, 2017           
Available-for-sale:           
U.S. Treasury securities and obligations of U.S. government corporations and agencies$73,135
 $(1,009) $1,003
 $(5) $74,138
 $(1,014)
Obligations of states and political subdivisions25,250
 (274) 9,339
 (212) 34,589
 (486)
Mortgage-backed securities: GSE residential86,744
 (810) 9,084
 (251) 95,828
 (1,061)
Trust preferred securities—
 —
 2,701
 (232) 2,701
 (232)
Other securities—
 —
 —
 —
 —
 —
Total$185,129
 $(2,093) $22,127
 $(700) $207,256
 $(2,793)
Held-to-maturity:           
U.S. Treasury securities and obligations of U.S. government corporations and agencies$29,336
 $(229) $14,725
 $(268) $44,061
 $(497)
December 31, 2016 
  
  
  
  
  
Available-for-sale:           
U.S. Treasury securities and obligations of U.S. government corporations and agencies$125,257
 $(2,508) $—
 $—
 $125,257
 $(2,508)
Obligations of states and political subdivisions93,405
 (2,804) —
 —
 93,405
 (2,804)
Mortgage-backed securities: GSE residential266,319
 (4,099) 5,878
 (270) 272,197
 (4,369)
Trust preferred securities—
 —
 1,652
 (1,398) 1,652
 (1,398)
Other securities—
 —
 1,995
 (5) 1,995
 (5)
Total$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$53,295
 $(1,338) $—
 $—
 $53,295
 $(1,338)

U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies.At September 30, 2017March 31, 2023 there was one available-for sale U.S. Treasurywere forty-five available-for-sale securities and obligations of U.S. government corporations and agencies with a fair value of $1,003,000$220.7 million and unrealized losses of $5,000$29.7 million in a continuous unrealized loss position for twelve months or more. At December 31, 2016 ,2022, there were no available-for sale U.S. Treasurysixteen available-for-sale securities with a fair value of $163.5 million and obligationsunrealized losses of U.S. government corporations and agencies$28.9 million in a continuous unrealized loss position for twelve months or more. At September 30, 2017 thereThere were three held-to-maturity U.S. Treasury securities and obligations of U.S. government corporations and agencies with a fair value of $14,725,000 and unrealized losses of $268,000 in a continuous unrealized loss position for twelve months or more. At December 31, 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 September 30, 2017March 31, 2023, there were twenty-twotwo hundred and two obligations of states and political subdivisions with a fair value of $9,339,000$212.7 million and unrealized losses of $212,000 in a continuous loss position for twelve months or more. At December 31, 2016, there were no obligations of states and political subdivisions in a continuous unrealized loss position for twelve months or more.


Mortgage-backed Securities: GSE Residential. At September 30, 2017 there were five mortgage-backed securities with a fair value of $9,084,000 and unrealized losses of $251,000 in a continuous unrealized loss position for twelve months or more. At December 31, 2016, there were two mortgage-backed securities with a fair value of $5,878,000 and unrealized losses of $270,000 in a continuous unrealized loss position for twelve months or more.

14





Trust Preferred Securities. At September 30, 2017, there was one trust preferred security with a fair value of $2,701,000 and unrealized loss of $232,000 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 $1,652,000 and unrealized loss of $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 2017 or 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 September 30, 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
 Fair Value Unrealized Gains (Losses) 
Other-than-
temporary
Impairment
Recorded To-date
PreTSL XXVIII$2,933
 $2,701
 $(232) $(1,111)


Other securities. At September 30, 2017 there were no other securities53.8 million in a continuous unrealized loss position for twelve months or more. At December 31, 2016,2022 there was one other securitywere thirty-six obligations of states and political subdivisions with a fair value of $1,995,000$45.4 million and unrealized losses of $5,000$16.6 million in a continuous unrealized loss position for twelve months or more.

The Company does not believe any other individual

Mortgage-backed Securities: GSE Residential. At March 31, 2023, there were two hundred nineteen mortgage-backed securities with a fair value of $$610.9 million and unrealized losses of $105.2 million in a continuous unrealized loss as of September 30, 2017 represents OTTI. However, given the continued disruption in the financial markets, the Company may be required to recognize OTTI losses in future periodsposition for twelve months or more. At December 31, 2022, there were ninety-one mortgage-backed securities 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 presentfair value of the cash flows from quarter to quarter to determine if$461.4 million and unrealized losses of $96.9 million in a continuous unrealized loss position for twelve months or more.

Other securities. At March 31, 2023, 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 theirwere fourty other 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.

15





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 creditof $54.9 million and unrealized losses but is not otherwise other-than-temporarily impaired. The following table provides information about the trust preferred securityof $3.5 million in a continuous unrealized loss position for which onlytwelve months or more. At December 31, 2022, there were five other securities with a creditfair value of $6.7 million and unrealized losses of $0.8 million in a continuous unrealized loss was recognized in income and other losses are recorded in other comprehensive income (loss)position for the ninetwelve months ended September 30, 2017 and 2016 (in thousands).or more.


 Accumulated Credit Losses
 September 30, 2017 September 30, 2016
Credit losses on trust preferred securities held   
Beginning of period$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




16





Note 4 – Loans and Allowance for LoanCredit Losses


Loans are stated at amortized cost net of an allowance for credit losses. Amortized cost is the unpaid principal amount outstanding net of unearned premiums and discounts, unearned income and allowance for loan losses.  Unearned income includesnet deferred origination fees and costs. Deferred loan origination fees are reduced by loan origination costs and isare amortized to interest income over the life of the related loan using methods that approximated the effective interest rate method. Interest on substantially all loans is credited to income based on the principal amount outstanding.

A summary of loans at September 30, 2017March 31, 2023 and December 31, 20162022 follows (in thousands):

 

 

March 31, 2023

 

 

December 31, 2022

 

Construction and land development

 

$

159,266

 

 

$

144,387

 

Agricultural real estate

 

 

402,283

 

 

 

410,790

 

1-4 family residential properties

 

 

424,373

 

 

 

440,018

 

Multifamily residential properties

 

 

302,506

 

 

 

295,073

 

Commercial real estate

 

 

2,009,524

 

 

 

2,036,243

 

Loans secured by real estate

 

 

3,297,952

 

 

 

3,326,511

 

Agricultural loans

 

 

146,679

 

 

 

166,695

 

Commercial and industrial loans

 

 

1,080,004

 

 

 

1,085,004

 

Consumer loans

 

 

88,404

 

 

 

97,730

 

All other loans

 

 

156,210

 

 

 

159,499

 

Total gross loans

 

 

4,769,249

 

 

 

4,835,439

 

Less: loans held for sale

 

 

999

 

 

 

338

 

 

 

4,768,250

 

 

 

4,835,101

 

Less:

 

 

 

 

 

 

Net deferred loan fees, premiums and discounts

 

 

8,618

 

 

 

9,227

 

Allowance for credit losses

 

 

58,223

 

 

 

59,093

 

Net loans

 

$

4,701,409

 

 

$

4,766,781

 

 September 30,
2017		 December 31,
2016
Construction and land development$77,325
 $49,366
Agricultural real estate126,164
 126,216
1-4 Family residential properties302,889
 328,119
Multifamily residential properties72,491
 83,478
Commercial real estate650,059
 633,694
Loans secured by real estate1,228,928
 1,220,873
Agricultural loans81,367
 86,735
Commercial and industrial loans444,836
 412,637
Consumer loans30,394
 38,404
All other loans89,117
 77,602
Total Gross loans1,874,642
 1,836,251
Less: Loans held for sale2,079
 1,175
 1,872,563
 1,835,076
Less: 
  
Net deferred loan fees, premiums and discounts7,080
 10,259
Allowance for loan losses18,589
 16,753
Net loans$1,846,894
 $1,808,064

Net loans increased $38.8 million as of September 30, 2017 compared to December 31, 2016. The increase was primarily due to increases in construction and land development and commercial and industrial loans offset by decreases in 1-4 family and multifamily residential properties.

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 marketfair value, taking into consideration future commitments to sell the loans. These loans are primarily for 1-4 family residential properties.


Accrued interest on loans, which is excluded from the amortized cost of the balances above, totaled $22.6 million and $23.0 million at March 31, 2023 and December 31, 2022, respectively.

15

Most of the Company’s business activities are with customers located near the Company's branch locations in Illinois, Missouri, and Missouri.Texas. At September 30, 2017,March 31, 2023, the Company’s loan portfolio included $207.5548.8 million of loans to borrowers whose businesses are directly related to agriculture. Of this amount, $166.4422.4 million was concentrated in corn and other grain farming. Total loans to borrowers whose businesses are directly related to agriculture decreased$5.528.4 million from $213.0577.2 million at December 31, 20162022 due to seasonal paydowns based upon timing of cash flow requirements. Loans concentrated in corn and other grain farming decreased $4.9 $22.8 million from $171.3445.2 million at December 31, 2016.  While the Company adheres to sound2022. The Company's underwriting practices includinginclude collateralization of loans, anyloans. 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 $120.3211.4 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 $168.3$945.7 million of loans to lessors of non-residential buildings, $129.4and $462.8 million of loans to lessors of residential buildings and dwellings, and $81.4 million of loans to other gambling industries.



17





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 and the vast majority ofmost borrowers are below regulatory thresholds. The Company can occasionally have outstanding balances to one borrower up to but not exceeding the regulatory threshold should

underwriting guidelines warrant. The vast majorityMost 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%65% to 80%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 or twenty five years., depending on the loan-to-value. 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%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-assistedgovernment- 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%65% and have amortization periods limited to twenty fivetwenty-five years. Federal government-assistance lending programs through the Farm Service Agency are used to mitigate the level of credit risk when deemed appropriate.


16

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 majoritymost 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%80% of the value of the collateral and have amortization periods of twenty fivetwenty-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.


18






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


Purchase Credit-Impaired Loans. Loans acquired with evidence of credit deterioration since origination and

Allowance for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include information such as past-due and nonaccrual status, borrower credit scores and recent loan to value percentages. Purchase credit-impaired ("PCI") loans are accounted for under ASC 310-30, Receivables--Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 310-30"), and are initially measured at fair value, which includes the estimated future credit losses expected to be incurred over the life of the loan. Accordingly, anLosses

The allowance for credit losses related to these loans is not carried over and recorded at the acquisition date. The cash flows expected to be collected were estimated using current key assumptions, such as default rates, value of underlying collateral, severity and prepayment speeds.


Allowance for Loan Losses

The allowance for loan losses represents the Company’s best estimate of the reserve necessary to adequately account for probable losses existing inexpected over the current portfolio.remaining contractual life of the assets. The provision for loancredit losses is the charge against current earnings that is determined by the Company as the amount needed to maintain an adequate allowance for loancredit losses. In determining the adequacy of the allowance for loancredit 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,modified 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. The Company estimates the appropriate level of allowance for loancredit losses by separately evaluating large impairedindividually evaluated loans and nonimpairedseparately from non-individually evaluated 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

Individually Evaluated 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,$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 justifyare less than the carrying amount of the loan. The carrying value of the loan reflects reductions from prior charge-offs.


Non-Impaired loans
Non-impaired

Non-Individually Evaluated Loans

Non-individually evaluated 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.modified loans. A small portion of these loans are considered “criticized” due to the risk rating assigned reflecting elevated credit risk due to characteristics, such as a strained cash flow position, associated with the individual borrowers. Criticized loans are those assigned risk ratings of Special Mention, Substandard, or Doubtful. Determining

To determine 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


19





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 generallysegmented based on delinquency status, collateral coverage, bankruptcy andsimilar risk characteristics. The allowance for credit losses is estimated using a discounted cash flow (DCF) methodology. The DCF projects future cash flows over the presence of fraud.

Due to weakened economic conditions during prior years, the Company established qualitative factor adjustments for eachlife of the loan segments at levels aboveportfolio. Probability of default (PD) and loss given default (LGD) are key components in calculating expected losses in this model. The PD is forecasted using a regression model that determines the historicallikelihood of default with a forward-looking forecast of unemployment rates. The LGD is the percentage of defaulted loans that is ultimately charged off. The allowance is calculated as the net loss averages. Somepresent value of the economic factors includedexpected cash flows less 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 levelsamortized cost basis 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 abilityloans. Prior to pay. Each of these economic uncertainties was taken into consideration in developing the level of2022, the allowance for credit losses was measured on a collective (pool) basis for non-individually evaluated loans with similar risk characteristics. Historical credit loss experience provided the basis for the estimate of expected credit losses. Adjustments to expected losses are made using qualitative factors for relevant to each loan losses.

segment including merger & acquisition activity, economic conditions, changes in policies, procedures & underwriting, and concentrations. In addition, a forecast, using reasonable and supportable future conditions, is prepared that is used to estimate expected changes to existing and historical conditions in the current period.

17

The Company has not materially changed any aspect of its overall approachalso considers specific current economic events occurring globally, in the determinationU.S. and in its local markets. Events considered include the status of trade agreements with China, scheduled increases in minimum wage and changes to the minimum salary threshold for overtime provisions, current and projected unemployment rates, current and projected grain and oil prices and economies of local markets where customers work and operate.

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

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

Construction and Land Development Loans. Historical losses in this segment remain very low. While staffing shortages and supply chain disruptions cause risk in this segment, most projects are associated with financially strong borrowers. The qualitative factors for this segment were not changed.

Agricultural Real Estate Loans. Historical losses in the segment remain very low. Farmland values have increased over an extended period of time and there are no indications that this will change in the next year. There was no change to the qualitative factors for this segment.

1- 4 Family Residential Properties Loans. The loan segment has remained stable throughout the last several years. Both adversely classified and past dues have been consistent. There was no change to the qualitative factors for this segment.

Commercial Real Estate Loans. This segment includes the Company's largest balances and the largest allowance for credit losses. The qualitative factors on both non-owner occupied and owner-occupied loans for this segment were increased due to actual and expected changes in economic and business conditions.

Agricultural Loans. Losses in this segment are very low. Commodity prices have been elevated and yields have been strong. The qualitative factors of this segment was not changed.

Commercial and Industrial Loans. This segment includes the second largest balance of allowance for credit losses. The qualitative factors for this segment was increased due to actual and expected changes in economic and business conditions.

Consumer Loans. This segment is the smallest portion of the Company's loan portfolio. There was no significant change to the qualitative factors.

Acquired Loans. Prior to January 1, 2020 loans acquired with evidence of credit deterioration since origination and for which it was probable that all contractually required payments would not be collected were considered purchased credit impaired at the time of acquisition. Purchase credit-impaired ("PCI") loans were accounted for under ASC 310-30, Receivables--Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 310-30"), and were initially measured at fair value, which included the estimated future credit losses expected to be incurred over the life of the loan.

Accordingly, an allowance for credit losses related to these loans was not carried over and recorded at the acquisition date. The cash flows expected to be collected were estimated using current key assumptions, such as default rates, value of underlying collateral, severity and prepayment speeds.

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

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

18

The following table presents the activity in the allowance for loan losses.  However,credit losses based on an on-going basisportfolio segment for the Company continues to refine the methods used in determining management’s best estimate of the allowance for loan losses.


three months ended March 31, 2023 (in thousands):

 

 

Construction
and Land
Development

 

 

Agricultural
Real Estate

 

 

1-4 Family
Residential
Properties

 

 

Commercial
Real Estate

 

 

Agricultural
Loans

 

 

Commercial
and Industrial

 

 

Consumer
Loans

 

 

Total

 

Three months ended March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

2,250

 

 

$

1,433

 

 

$

3,742

 

 

$

28,157

 

 

$

585

 

 

$

20,808

 

 

$

2,118

 

 

$

59,093

 

Initial allowance on loans purchased with credit deterioration

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Provision for credit loss expense

 

 

176

 

 

 

(29

)

 

 

(306

)

 

 

(834

)

 

 

(8

)

 

 

91

 

 

 

93

 

 

 

(817

)

Loans charged off

 

 

—

 

 

 

—

 

 

 

40

 

 

 

—

 

 

 

—

 

 

 

13

 

 

 

427

 

 

 

480

 

Recoveries collected

 

 

—

 

 

 

—

 

 

 

24

 

 

 

4

 

 

 

3

 

 

 

256

 

 

 

140

 

 

 

427

 

Ending balance

 

$

2,426

 

 

$

1,404

 

 

$

3,420

 

 

$

27,327

 

 

$

580

 

 

$

21,142

 

 

$

1,924

 

 

$

58,223

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following tables present the balanceactivity in the allowance for loancredit losses and the recorded investment in loans based on portfolio segment and impairment method for the three and nine-monthsmonths ended September 30, 2017 and 2016March 31, 2022 and for the year ended December 31, 20162022 (in thousands):

 

 

Construction and Land Development

 

 

Agricultural Real Estate

 

 

1-4 Family Residential Properties

 

 

Commercial Real Estate

 

 

Agricultural Loans

 

 

Commercial and Industrial

 

 

Consumer Loans

 

 

Total

 

Three months ended March 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance (prior to adoption of ASC 326)

 

$

1,743

 

 

$

1,257

 

 

$

2,330

 

 

$

26,246

 

 

$

983

 

 

$

19,241

 

 

$

2,855

 

 

$

54,655

 

Initial allowance on loans purchased with credit deterioration

 

 

272

 

 

 

—

 

 

 

3

 

 

 

478

 

 

 

—

 

 

 

94

 

 

 

16

 

 

 

863

 

Provision for credit loss expense

 

 

(25

)

 

 

714

 

 

 

1,264

 

 

 

3,613

 

 

 

68

 

 

 

(2,045

)

 

 

(637

)

 

 

2,952

 

Loans charged off

 

 

2

 

 

 

—

 

 

 

72

 

 

 

339

 

 

 

—

 

 

 

3

 

 

 

358

 

 

 

774

 

Recoveries collected

 

 

—

 

 

 

—

 

 

 

203

 

 

 

347

 

 

 

—

 

 

 

61

 

 

 

167

 

 

 

778

 

Ending balance

 

$

1,988

 

 

$

1,971

 

 

$

3,728

 

 

$

30,345

 

 

$

1,051

 

 

$

17,348

 

 

$

2,043

 

 

$

58,474

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Twelve months ended December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance (prior to adoption of ASC 326)

 

$

1,743

 

 

$

1,257

 

 

$

2,330

 

 

$

26,246

 

 

$

983

 

 

$

19,241

 

 

$

2,855

 

 

$

54,655

 

Impact of adopting ASC 326

 

 

272

 

 

 

—

 

 

 

3

 

 

 

478

 

 

 

—

 

 

 

94

 

 

 

16

 

 

 

863

 

Provision for credit loss expense

 

 

137

 

 

 

176

 

 

 

1,241

 

 

 

1,462

 

 

 

(359

)

 

 

2,135

 

 

 

14

 

 

 

4,806

 

Loans charged off

 

 

2

 

 

 

—

 

 

 

191

 

 

 

414

 

 

 

93

 

 

 

870

 

 

 

1,380

 

 

 

2,950

 

Recoveries collected

 

 

100

 

 

 

—

 

 

 

359

 

 

 

385

 

 

 

54

 

 

 

208

 

 

 

613

 

 

 

1,719

 

Ending balance

 

$

2,250

 

 

$

1,433

 

 

$

3,742

 

 

$

28,157

 

 

$

585

 

 

$

20,808

 

 

$

2,118

 

 

$

59,093

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Commercial/ Commercial Real Estate Agricultural/ Agricultural Real Estate Residential Real Estate Consumer Unallocated Total
Three months ended September 30, 2017          
Allowance for loan losses: 
  
  
  
  
  
Balance, beginning of period$14,747
 $1,743
 $969
 $716
 $34
 $18,209
Provision charged to expense1,440
 (57) (2) 72
 36
 1,489
Losses charged off(1,242) —
 (7) (160) —
 (1,409)
Recoveries158
 1
 78
 63
 —
 300
Balance, end of period$15,103
 $1,687
 $1,038
 $691
 $70
 $18,589
Ending balance: 
  
  
  
  
  
Individually evaluated for impairment$168
 $—
 $125
 $2
 $—
 $295
Collectively evaluated for impairment$14,935
 $1,687
 $913
 $689
 $70
 $18,294
Acquired with deteriorated credit quality$—
 $—
 $—
 $—
 $—
 $—

20





 Commercial/ Commercial Real Estate Agricultural/ Agricultural Real Estate Residential Real Estate Consumer Unallocated Total
Three months ended September 30, 2016  
  
  
  
  
Allowance for loan losses: 
  
  
  
  
  
Balance, beginning of period$12,025
 $1,419
 $924
 $733
 $63
 $15,164
Provision charged to expense445
 476
 (36) 248
 (52) 1,081
Losses charged off—
 —
 —
 (271) —
 (271)
Recoveries128
 2
 1
 56
 —
 187
Balance, end of period$12,598
 $1,897
 $889
 $766
 $11
 $16,161
Ending balance: 
  
  
  
  
  
Individually evaluated for impairment$272
 $329
 $—
 $—
 $—
 $601
Collectively evaluated for impairment$12,326
 $1,568
 $889
 $766
 $11
 $15,560
Acquired with deteriorated credit quality$—
 $—
 $—
 $—
 $—
 $—
Nine months ended September 30, 2017          
Allowance for loan losses:           
Balance, beginning of year$12,901
 $2,249
 $874
 $693
 $36
 $16,753
Provision charged to expense4,573
 98
 167
 179
 34
 5,051
Losses charged off(2,725) (662) (106) (397) —
 (3,890)
Recoveries354
 2
 103
 216
 —
 675
Balance, end of period$15,103
 $1,687
 $1,038
 $691
 $70
 $18,589
Ending balance: 
  
  
  
  
  
Individually evaluated for impairment$168
 $—
 $125
 $2
 $—
 $295
Collectively evaluated for impairment$14,935
 $1,687
 $913
 $689
 $70
 $18,294
Acquired with deteriorated credit quality$—
 $—
 $—
 $—
 $—
 $—
Loans: 
  
  
  
  
  
Individually evaluated for impairment$7,635
 $513
 $1,418
 $210
 $—
 $9,776
Collectively evaluated for impairment1,287,821
 206,669
 324,920
 32,892
 $—
 1,852,302
Acquired with deteriorated credit quality5,484
 —
 —
 —
 $—
 5,484
Ending balance$1,300,940
 $207,182
 $326,338
 $33,102
 $—
 $1,867,562

21





 Commercial/ Commercial Real Estate Agricultural/ Agricultural Real Estate Residential Real Estate Consumer Unallocated Total
Nine months ended September 30, 2016          
Allowance for loan losses:           
Balance, beginning of year$11,379
 $1,337
 $994
 $642
 $224
 $14,576
Provision charged to expense1,058
 587
 36
 459
 (213) 1,927
Losses charged off(582) (30) (142) (493) —
 (1,247)
Recoveries743
 3
 1
 158
 —
 905
Balance, end of period$12,598
 $1,897
 $889
 $766
 $11
 $16,161
Ending balance: 
  
  
  
  
  
Individually evaluated for impairment$272
 $329
 $—
 $—
 $—
 $601
Collectively evaluated for impairment$12,326
 $1,568
 $889
 $766
 $11
 $15,560
Acquired with deteriorated credit quality$—
 $—
 $—
 $—
 $—
 $—
Loans: 
  
  
  
  
  
Individually evaluated for impairment$1,753
 $1,170
 $471
 $20
 $—
 $3,414
Collectively evaluated for impairment1,162,386
 208,775
 378,742
 44,740
 —
 1,794,643
Acquired with deteriorated credit quality3,942
 —
 4,746
 —
 —
 8,688
Ending balance$1,168,081
 $209,945
 $383,959
 $44,760
 $—
 $1,806,745
Year ended December 31, 2016 
  
  
  
  
  
Allowance for loan losses: 
  
  
  
  
  
Balance, beginning of year$11,379
 $1,337
 $994
 $642
 $224
 $14,576
Provision charged to expense1,467
 933
 113
 501
 (188) 2,826
Losses charged off(747) (30) (234) (664) —
 (1,675)
Recoveries802
 9
 1
 214
 —
 1,026
Balance, end of year$12,901
 $2,249
 $874
 $693
 $36
 $16,753
Ending balance: 
  
  
  
  
  
Individually evaluated for impairment$192
 $660
 $6
 $—
 $—
 $858
Collectively evaluated for impairment$12,695
 $1,589
 $868
 $693
 $36
 $15,881
Acquired with deteriorated credit quality$14
 $—
 $—
 $—
 $—
 $14
Loans: 
  
  
  
  
  
Individually evaluated for impairment$1,956
 $1,345
 $1,752
 $213
 $—
 $5,266
Collectively evaluated for impairment1,199,003
 211,168
 360,825
 41,644
 —
 1,812,640
Acquired with deteriorated credit quality3,840
 —
 4,246
 —
 —
 8,086
Ending balance$1,204,799
 $212,513
 $366,823
 $41,857
 $—
 $1,825,992



22





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 impairedindividually evaluated 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 timeframestime frames 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.

19

The following table presents the amortized cost basis of collateral-dependent loans by class of loans that were individually evaluated to determine expected credit losses, and the related allowance for credit losses, as of March 31, 2023 (in thousands):

 

 

Collateral

 

 

Allowance

 

 

 

Real Estate

 

 

Business
Assets

 

 

Other

 

 

Total

 

 

for Credit
Losses

 

Construction and land development

 

$

440

 

 

$

—

 

 

$

—

 

 

$

440

 

 

$

211

 

Agricultural real estate

 

 

—

 

 

 

—

 

 

 

16

 

 

 

16

 

 

 

—

 

1-4 family residential properties

 

 

84

 

 

 

—

 

 

 

—

 

 

 

84

 

 

 

—

 

Multifamily residential properties

 

 

1,151

 

 

 

—

 

 

 

—

 

 

 

1,151

 

 

 

—

 

Commercial real estate

 

 

5,674

 

 

 

—

 

 

 

—

 

 

 

5,674

 

 

 

—

 

Loans secured by real estate

 

 

7,349

 

 

 

—

 

 

 

16

 

 

 

7,365

 

 

 

211

 

Agricultural loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Commercial and industrial loans

 

 

320

 

 

 

156

 

 

 

—

 

 

 

476

 

 

 

53

 

Consumer loans

 

 

—

 

 

 

—

 

 

 

—

 

 

0

 

 

 

—

 

Total loans

 

$

7,669

 

 

$

156

 

 

$

16

 

 

$

7,841

 

 

$

264

 


Credit Quality


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


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


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


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


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



23



20



The following tables present the credit risk profile of the Company’s loan portfolio on amortized cost basis based on risk rating category and year of origination as of March 31, 2023 (in thousands):

 

 

Term Loans by Origination Year

 

 

Revolving

 

 

 

 

Risk rating

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Loans

 

 

Total

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and land development loans

 

Pass

 

$

9,251

 

 

$

79,695

 

 

$

35,078

 

 

$

7,325

 

 

$

15,864

 

 

$

11,465

 

 

$

—

 

 

$

158,678

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

14

 

 

 

465

 

 

 

—

 

 

 

479

 

Total

 

$

9,251

 

 

$

79,695

 

 

$

35,078

 

 

$

7,325

 

 

$

15,878

 

 

$

11,930

 

 

$

—

 

 

$

159,157

 

Current period gross writeoffs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

Agricultural real estate loans

 

Pass

 

$

3,716

 

 

$

167,382

 

 

$

64,522

 

 

$

57,166

 

 

$

22,731

 

 

$

80,117

 

 

$

—

 

 

$

395,634

 

Special mention

 

 

—

 

 

 

112

 

 

 

—

 

 

 

251

 

 

 

1,240

 

 

 

3,499

 

 

 

—

 

 

 

5,102

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,221

 

 

 

—

 

 

 

1,221

 

Total

 

$

3,716

 

 

$

167,494

 

 

$

64,522

 

 

$

57,417

 

 

$

23,971

 

 

$

84,837

 

 

$

—

 

 

$

401,957

 

Current period gross writeoffs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

1-4 family residential property loans

 

Pass

 

$

8,069

 

 

$

86,712

 

 

$

83,578

 

 

$

75,367

 

 

$

26,755

 

 

$

85,754

 

 

$

42,060

 

 

$

408,295

 

Special mention

 

 

—

 

 

 

186

 

 

 

123

 

 

 

—

 

 

 

43

 

 

 

4,172

 

 

 

—

 

 

 

4,524

 

Substandard

 

 

51

 

 

 

970

 

 

 

501

 

 

 

523

 

 

 

280

 

 

 

9,401

 

 

 

—

 

 

 

11,726

 

Total

 

$

8,120

 

 

$

87,868

 

 

$

84,202

 

 

$

75,890

 

 

$

27,078

 

 

$

99,327

 

 

$

42,060

 

 

$

424,545

 

Current period gross writeoffs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

40

 

 

$

—

 

 

$

40

 

Commercial real estate loans

 

Pass

 

$

11,117

 

 

$

555,543

 

 

$

502,596

 

 

$

314,461

 

 

$

235,766

 

 

$

658,790

 

 

$

—

 

 

$

2,278,273

 

Special mention

 

 

—

 

 

 

2,163

 

 

 

1,089

 

 

 

761

 

 

 

1,281

 

 

 

7,933

 

 

 

—

 

 

 

13,227

 

Substandard

 

 

—

 

 

 

3,717

 

 

 

471

 

 

 

55

 

 

 

891

 

 

 

8,821

 

 

 

—

 

 

 

13,955

 

Total

 

$

11,117

 

 

$

561,423

 

 

$

504,156

 

 

$

315,277

 

 

$

237,938

 

 

$

675,544

 

 

$

—

 

 

$

2,305,455

 

Current period gross writeoffs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

Agricultural loans

 

Pass

 

$

39,064

 

 

$

78,918

 

 

$

18,652

 

 

$

4,669

 

 

$

2,184

 

 

$

1,969

 

 

$

—

 

 

$

145,456

 

Special mention

 

 

22

 

 

 

744

 

 

 

—

 

 

 

—

 

 

 

74

 

 

 

65

 

 

 

—

 

 

 

905

 

Substandard

 

 

—

 

 

 

379

 

 

 

102

 

 

 

—

 

 

 

5

 

 

 

—

 

 

 

—

 

 

 

486

 

Total

 

$

39,086

 

 

$

80,041

 

 

$

18,754

 

 

$

4,669

 

 

$

2,263

 

 

$

2,034

 

 

$

—

 

 

$

146,847

 

Current period gross writeoffs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

Commercial and industrial loans

 

Pass

 

$

60,676

 

 

$

423,532

 

 

$

208,003

 

 

$

169,864

 

 

$

61,133

 

 

$

286,309

 

 

$

—

 

 

$

1,209,517

 

Special mention

 

 

49

 

 

 

409

 

 

 

7,972

 

 

 

7,760

 

 

 

587

 

 

 

6,470

 

 

 

—

 

 

 

23,247

 

Substandard

 

 

—

 

 

 

385

 

 

 

328

 

 

 

156

 

 

 

7

 

 

 

600

 

 

 

—

 

 

 

1,476

 

Total

 

$

60,725

 

 

$

424,326

 

 

$

216,303

 

 

$

177,780

 

 

$

61,727

 

 

$

293,379

 

 

$

—

 

 

$

1,234,240

 

Current period gross writeoffs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

13

 

 

$

—

 

 

$

13

 

Consumer loans

 

Pass

 

$

2,434

 

 

$

43,310

 

 

$

18,614

 

 

$

10,484

 

 

$

6,019

 

 

$

6,964

 

 

$

—

 

 

$

87,825

 

Special mention

 

 

—

 

 

 

—

 

 

 

17

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

17

 

Substandard

 

 

2

 

 

 

155

 

 

 

303

 

 

 

39

 

 

 

37

 

 

 

52

 

 

 

—

 

 

 

588

 

Total

 

$

2,436

 

 

$

43,465

 

 

$

18,934

 

 

$

10,523

 

 

$

6,056

 

 

$

7,016

 

 

$

—

 

 

$

88,430

 

Current period gross writeoffs

 

$

—

 

 

$

50

 

 

$

61

 

 

$

1

 

 

$

9

 

 

$

306

 

 

$

—

 

 

$

427

 

Total loans

 

Pass

 

$

134,327

 

 

$

1,435,092

 

 

$

931,043

 

 

$

639,336

 

 

$

370,452

 

 

$

1,131,368

 

 

$

42,060

 

 

$

4,683,678

 

Special mention

 

 

71

 

 

 

3,614

 

 

 

9,201

 

 

 

8,772

 

 

 

3,225

 

 

 

22,139

 

 

 

—

 

 

 

47,022

 

Substandard

 

 

53

 

 

 

5,606

 

 

 

1,705

 

 

 

773

 

 

 

1,234

 

 

 

20,560

 

 

 

—

 

 

 

29,931

 

Total

 

$

134,451

 

 

$

1,444,312

 

 

$

941,949

 

 

$

648,881

 

 

$

374,911

 

 

$

1,174,067

 

 

$

42,060

 

 

$

4,760,631

 

Current period gross writeoffs

 

$

—

 

 

$

50

 

 

$

61

 

 

$

1

 

 

$

9

 

 

$

359

 

 

$

—

 

 

$

480

 

21

The following tables present the credit risk profile of the Company’s loan portfolio based on risk rating category and payment activity as of September 30, 2017 and December 31, 20162022 (in thousands):

 

 

Term Loans by Origination Year

 

 

Revolving

 

 

 

 

Risk rating

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

2018

 

 

Prior

 

 

Loans

 

 

Total

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and land development loans

 

Pass

 

$

63,846

 

 

$

39,790

 

 

$

12,558

 

 

$

15,787

 

 

$

1,210

 

 

$

10,601

 

 

$

—

 

 

$

143,792

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

14

 

 

 

—

 

 

 

458

 

 

 

—

 

 

 

472

 

Total

 

$

63,846

 

 

$

39,790

 

 

$

12,558

 

 

$

15,801

 

 

$

1,210

 

 

$

11,059

 

 

$

—

 

 

$

144,264

 

Current period gross writeoffs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

2

 

 

$

—

 

 

$

2

 

Agricultural real estate loans

 

Pass

 

$

171,833

 

 

$

67,115

 

 

$

58,283

 

 

$

23,820

 

 

$

27,573

 

 

$

52,799

 

 

$

—

 

 

$

401,423

 

Special mention

 

 

1,123

 

 

 

—

 

 

 

490

 

 

 

1,240

 

 

 

273

 

 

 

3,121

 

 

 

—

 

 

 

6,247

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,383

 

 

 

1,274

 

 

 

—

 

 

 

2,657

 

Total

 

$

172,956

 

 

$

67,115

 

 

$

58,773

 

 

$

25,060

 

 

$

29,229

 

 

$

57,194

 

 

$

—

 

 

$

410,327

 

Current period gross writeoffs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

1-4 family residential property loans

 

Pass

 

$

94,377

 

 

$

86,717

 

 

$

78,977

 

 

$

27,580

 

 

$

30,809

 

 

$

63,050

 

 

$

43,722

 

 

$

425,232

 

Special mention

 

 

169

 

 

 

218

 

 

 

1

 

 

 

44

 

 

 

238

 

 

 

1,000

 

 

 

—

 

 

 

1,670

 

Substandard

 

 

1,060

 

 

 

566

 

 

 

529

 

 

 

295

 

 

 

2,749

 

 

 

8,079

 

 

 

—

 

 

 

13,278

 

Total

 

$

95,606

 

 

$

87,501

 

 

$

79,507

 

 

$

27,919

 

 

$

33,796

 

 

$

72,129

 

 

$

43,722

 

 

$

440,180

 

Current period gross writeoffs

 

$

—

 

 

$

—

 

 

$

67

 

 

$

13

 

 

$

—

 

 

$

111

 

 

$

—

 

 

$

191

 

Commercial real estate loans

 

Pass

 

$

558,921

 

 

$

509,614

 

 

$

319,049

 

 

$

239,564

 

 

$

211,505

 

 

$

453,076

 

 

$

—

 

 

$

2,291,729

 

Special mention

 

 

2,187

 

 

 

1,287

 

 

 

769

 

 

 

1,508

 

 

 

952

 

 

 

8,503

 

 

 

—

 

 

 

15,206

 

Substandard

 

 

3,783

 

 

 

478

 

 

 

794

 

 

 

873

 

 

 

5,394

 

 

 

6,100

 

 

 

—

 

 

 

17,422

 

Total

 

$

564,891

 

 

$

511,379

 

 

$

320,612

 

 

$

241,945

 

 

$

217,851

 

 

$

467,679

 

 

$

—

 

 

$

2,324,357

 

Current period gross writeoffs

 

$

250

 

 

$

22

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

142

 

 

$

—

 

 

$

414

 

Agricultural loans

 

Pass

 

$

137,327

 

 

$

18,783

 

 

$

3,433

 

 

$

3,918

 

 

$

915

 

 

$

254

 

 

$

—

 

 

$

164,630

 

Special mention

 

 

1,178

 

 

 

—

 

 

 

—

 

 

 

756

 

 

 

66

 

 

 

109

 

 

 

—

 

 

 

2,109

 

Substandard

 

 

53

 

 

 

—

 

 

 

—

 

 

 

46

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

99

 

Total

 

$

138,558

 

 

$

18,783

 

 

$

3,433

 

 

$

4,720

 

 

$

981

 

 

$

363

 

 

$

—

 

 

$

166,838

 

Current period gross writeoffs

 

$

—

 

 

$

93

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

93

 

Commercial and industrial loans

 

Pass

 

$

450,001

 

 

$

226,038

 

 

$

172,208

 

 

$

63,906

 

 

$

61,929

 

 

$

247,404

 

 

$

—

 

 

$

1,221,486

 

Special mention

 

 

469

 

 

 

640

 

 

 

10,095

 

 

 

570

 

 

 

7,280

 

 

 

158

 

 

 

—

 

 

 

19,212

 

Substandard

 

 

346

 

 

 

418

 

 

 

184

 

 

 

35

 

 

 

157

 

 

 

633

 

 

 

—

 

 

 

1,773

 

Total

 

$

450,816

 

 

$

227,096

 

 

$

182,487

 

 

$

64,511

 

 

$

69,366

 

 

$

248,195

 

 

$

—

 

 

$

1,242,471

 

Current period gross writeoffs

 

$

39

 

 

$

311

 

 

$

39

 

 

$

439

 

 

$

23

 

 

$

19

 

 

$

—

 

 

$

870

 

Consumer loans

 

Pass

 

$

48,600

 

 

$

21,088

 

 

$

12,101

 

 

$

7,968

 

 

$

1,945

 

 

$

5,630

 

 

$

—

 

 

$

97,332

 

Special mention

 

 

—

 

 

 

18

 

 

 

1

 

 

 

—

 

 

 

5

 

 

 

—

 

 

 

—

 

 

 

24

 

Substandard

 

 

69

 

 

 

246

 

 

 

3

 

 

 

43

 

 

 

52

 

 

 

6

 

 

 

—

 

 

 

419

 

Total

 

$

48,669

 

 

$

21,352

 

 

$

12,105

 

 

$

8,011

 

 

$

2,002

 

 

$

5,636

 

 

$

—

 

 

$

97,775

 

Current period gross writeoffs

 

$

22

 

 

$

177

 

 

$

89

 

 

$

10

 

 

$

7

 

 

$

1,075

 

 

$

—

 

 

$

1,380

 

Total loans

 

Pass

 

$

1,524,905

 

 

$

969,145

 

 

$

656,609

 

 

$

382,543

 

 

$

335,886

 

 

$

832,814

 

 

$

43,722

 

 

$

4,745,624

 

Special mention

 

 

5,126

 

 

 

2,163

 

 

 

11,356

 

 

 

4,118

 

 

 

8,814

 

 

 

12,891

 

 

 

—

 

 

 

44,468

 

Substandard

 

 

5,311

 

 

 

1,708

 

 

 

1,510

 

 

 

1,306

 

 

 

9,735

 

 

 

16,550

 

 

 

—

 

 

 

36,120

 

Total

 

$

1,535,342

 

 

$

973,016

 

 

$

669,475

 

 

$

387,967

 

 

$

354,435

 

 

$

862,255

 

 

$

43,722

 

 

$

4,826,212

 

Current period gross writeoffs

 

$

311

 

 

$

603

 

 

$

195

 

 

$

462

 

 

$

30

 

 

$

1,349

 

 

$

—

 

 

$

2,950

 

22


 
Construction &
Land Development
 Agricultural Real Estate 
1-4 Family Residential
Properties
 
Multifamily Residential
Properties
 2017 2016 2017 2016 2017 2016 2017 2016
Pass$76,913
 $48,877
 $119,958
 $118,934
 $290,989
 $318,921
 $64,938
 $81,018
Special Mention—
 —
 4,862
 5,190
 2,359
 918
 89
 1,651
Substandard266
 227
 1,276
 1,984
 8,549
 6,576
 7,296
 531
Doubtful—
 —
 —
 —
 —
 —
 —
 —
Total$77,179
 $49,104
 $126,096
 $126,108
 $301,897
 $326,415
 $72,323
 $83,200

 Commercial Real Estate (Nonfarm/Nonresidential) Agricultural Loans Commercial & Industrial Loans Consumer Loans
 2017 2016 2017 2016 2017 2016 2017 2016
Pass$609,203
 $610,025
 $78,356
 $81,922
 $424,306
 $397,762
 $29,669
 $37,624
Special Mention20,082
 5,229
 2,128
 3,271
 17,560
 8,485
 13
 17
Substandard17,899
 14,881
 899
 1,492
 1,607
 2,786
 392
 387
Doubtful—
 —
 —
 —
 —
 —
 —
 —
Total$647,184
 $630,135
 $81,383
 $86,685
 $443,473
 $409,033
 $30,074
 $38,028

 All Other Loans Total Loans
 2017 2016 2017 2016
Pass$85,239
 $74,377
 $1,779,571
 $1,769,460
Special Mention2,714
 2,892
 49,807
 27,653
Substandard—
 15
 38,184
 28,879
Doubtful—
 —
 —
 —
Total$87,953
 $77,284
 $1,867,562
 $1,825,992

24





The following table presents the Company’s loan portfolio aging analysis at September 30, 2017March 31, 2023 and December 31, 20162022 (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 and
Accruing

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and land development

 

$

17

 

 

$

—

 

 

$

463

 

 

$

480

 

 

$

158,677

 

 

$

159,157

 

 

$

—

 

Agricultural real estate

 

 

—

 

 

 

—

 

 

 

1

 

 

 

1

 

 

 

401,956

 

 

 

401,957

 

 

 

—

 

1-4 family residential properties

 

 

2,182

 

 

 

13

 

 

 

936

 

 

 

3,131

 

 

 

421,414

 

 

 

424,545

 

 

 

—

 

Multifamily residential properties

 

 

—

 

 

 

—

 

 

 

550

 

 

 

550

 

 

 

301,258

 

 

 

301,808

 

 

 

—

 

Commercial real estate

 

 

268

 

 

 

77

 

 

 

3,107

 

 

 

3,452

 

 

 

2,000,195

 

 

 

2,003,647

 

 

 

—

 

Loans secured by real estate

 

 

2,467

 

 

 

90

 

 

 

5,057

 

 

 

7,614

 

 

 

3,283,500

 

 

 

3,291,114

 

 

 

—

 

Agricultural loans

 

 

—

 

 

 

2

 

 

 

481

 

 

 

483

 

 

 

146,364

 

 

 

146,847

 

 

 

—

 

Commercial and industrial loans

 

 

71

 

 

 

—

 

 

 

930

 

 

 

1,001

 

 

 

1,077,020

 

 

 

1,078,021

 

 

 

—

 

Consumer loans

 

 

420

 

 

 

118

 

 

 

194

 

 

 

732

 

 

 

87,698

 

 

 

88,430

 

 

 

—

 

All other loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

156,219

 

 

 

156,219

 

 

 

—

 

Total loans

 

$

2,958

 

 

$

210

 

 

$

6,662

 

 

$

9,830

 

 

$

4,750,801

 

 

$

4,760,631

 

 

$

—

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and land development

 

$

20

 

 

$

14

 

 

$

449

 

 

$

483

 

 

$

143,781

 

 

$

144,264

 

 

$

—

 

Agricultural real estate

 

 

20

 

 

 

6

 

 

 

1

 

 

 

27

 

 

 

410,300

 

 

 

410,327

 

 

 

—

 

1-4 family residential properties

 

 

1,706

 

 

 

1,092

 

 

 

896

 

 

 

3,694

 

 

 

436,486

 

 

 

440,180

 

 

 

—

 

Multifamily residential properties

 

 

—

 

 

 

—

 

 

 

548

 

 

 

548

 

 

 

293,798

 

 

 

294,346

 

 

 

—

 

Commercial real estate

 

 

494

 

 

 

205

 

 

 

3,654

 

 

 

4,353

 

 

 

2,025,658

 

 

 

2,030,011

 

 

 

—

 

Loans secured by real estate

 

 

2,240

 

 

 

1,317

 

 

 

5,548

 

 

 

9,105

 

 

 

3,310,023

 

 

 

3,319,128

 

 

 

—

 

Agricultural loans

 

 

—

 

 

 

53

 

 

 

29

 

 

 

82

 

 

 

166,756

 

 

 

166,838

 

 

 

—

 

Commercial and industrial loans

 

 

716

 

 

 

24

 

 

 

854

 

 

 

1,594

 

 

 

1,081,366

 

 

 

1,082,960

 

 

 

—

 

Consumer loans

 

 

326

 

 

 

195

 

 

 

278

 

 

 

799

 

 

 

96,976

 

 

 

97,775

 

 

 

—

 

All other loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

159,511

 

 

 

159,511

 

 

 

—

 

Total loans

 

$

3,282

 

 

$

1,589

 

 

$

6,709

 

 

$

11,580

 

 

$

4,814,632

 

 

$

4,826,212

 

 

$

—

 


 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
September 30, 2017             
Construction and land development$—
 $—
 $267
 $267
 $76,912
 $77,179
 $—
Agricultural real estate—
 —
 396
 396
 125,700
 126,096
 —
1-4 Family residential properties1,542
 282
 2,146
 3,970
 297,927
 301,897
 —
Multifamily residential properties—
 4,494
 56
 4,550
 67,773
 72,323
 —
Commercial real estate968
 1,129
 1,130
 3,227
 643,957
 647,184
 —
Loans secured by real estate2,510
 5,905
 3,995
 12,410
 1,212,269
 1,224,679
 —
Agricultural loans14
 41
 178
 233
 81,150
 81,383
 —
Commercial and industrial loans613
 407
 592
 1,612
 441,861
 443,473
 —
Consumer loans188
 6
 3
 197
 29,877
 30,074
 —
All other loans—
 —
 —
 —
 87,953
 87,953
 —
Total loans$3,325
 $6,359
 $4,768
 $14,452
 $1,853,110
 $1,867,562
 $—
December 31, 2016 
  
  
  
  
  
  
Construction and land development$—
 $—
 $—
 $—
 $49,104
 $49,104
 $—
Agricultural real estate—
 131
 293
 424
 125,684
 126,108
 —
1-4 Family residential properties1,854
 713
 1,008
 3,575
 322,840
 326,415
 105
Multifamily residential properties—
 —
 240
 240
 82,960
 83,200
 —
Commercial real estate1,662
 716
 43
 2,421
 627,714
 630,135
 —
Loans secured by real estate3,516
 1,560
 1,584
 6,660
 1,208,302
 1,214,962
 105
Agricultural loans365
 84
 37
 486
 86,199
 86,685
 —
Commercial and industrial loans395
 155
 249
 799
 408,234
 409,033
 —
Consumer loans192
 37
 11
 240
 37,788
 38,028
 —
All other loans—
 —
 —
 —
 77,284
 77,284
 —
Total loans$4,468
 $1,836
 $1,881
 $8,185
 $1,817,807
 $1,825,992
 $105


Impaired

Individually Evaluated 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,modified, are placed on nonaccrual status. Impaired loans include nonaccrual loans and loans modified in troubled debt restructuringsrestructuring 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


25





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 restructuringsmodified 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 September 30, 2017 and December 31, 2016 (in thousands):

 September 30, 2017 December 31, 2016
 
Recorded
Balance
 Unpaid Principal Balance Specific Allowance 
Recorded
Balance
 Unpaid Principal Balance Specific Allowance
Loans with a specific allowance:           
Construction and land development$266
 $607
 $—
 $227
 $227
 $—
Agricultural real estate276
 276
 —
 —
 —
 —
1-4 Family residential properties1,417
 1,738
 125
 997
 997
 6
Multifamily residential properties7,425
 7,425
 11
 528
 528
 —
Commercial real estate4,391
 4,547
 29
 863
 884
 —
Loans secured by real estate13,775
 14,593
 165
 2,615
 2,636
 6
Agricultural loans237
 1,080
 —
 1,345
 1,345
 660
Commercial and industrial loans1,038
 1,456
 128
 1,093
 1,191
 192
Consumer loans210
 210
 2
 213
 213
 —
All other loans—
 —
 —
 —
 —
 —
Total loans$15,260
 $17,339
 $295
 $5,266
 $5,385
 $858
Loans without a specific allowance: 
  
  
  
  
  
Construction and land development$—
 $—
 $—
 $—
 $—
 $—
Agricultural real estate15
 15
 —
 205
 207
 —
1-4 Family residential properties1,623
 2,106
 —
 2,497
 3,207
 —
Multifamily residential properties—
 —
 —
 3,419
 3,547
 —
Commercial real estate1,297
 1,474
 —
 6,224
 6,802
 —
Loans secured by real estate2,935
 3,595
 —
 12,345
 13,763
 —
Agricultural loans597
 7
 —
 43
 66
 —
Commercial and industrial loans911
 1,218
 —
 378
 572
 —
Consumer loans85
 95
 —
 206
 211
 —
All other loans—
 —
 —
 —
 —
 —
Total loans$4,528
 $4,915
 $—
 $12,972
 $14,612
 $—
Total loans: 
  
  
  
  
  
Construction and land development$266
 $607
 $—
 $227
 $227
 $—
Agricultural real estate291
 291
 —
 205
 207
 —
1-4 Family residential properties3,040
 3,844
 125
 3,494
 4,204
 6
Multifamily residential properties7,425
 7,425
 11
 3,947
 4,075
 —
Commercial real estate5,688
 6,021
 29
 7,087
 7,686
 —
Loans secured by real estate16,710
 18,188
 165
 14,960
 16,399
 6
Agricultural loans834
 1,087
 —
 1,388
 1,411
 660
Commercial and industrial loans1,949
 2,674
 128
 1,471
 1,763
 192
Consumer loans295
 305
 2
 419
 424
 —
All other loans—
 —
 —
 —
 —
 —
Total loans$19,788
 $22,254
 $295
 $18,238
 $19,997
 $858

26





The following tables present average recorded investment and interest income recognized on impaired loans for the three and nine-month periods ended September 30, 2017 and 2016 (in thousands):
        
 For the three months ended
 September 30, 2017 September 30, 2016
 
Average Investment
in Impaired Loans
 Interest Income Recognized 
Average Investment
in Impaired Loans
 Interest Income Recognized
Construction and land development$267
 $—
 $231
 $—
Agricultural real estate291
 —
 474
 —
1-4 Family residential properties3,047
 5
 1,572
 3
Multifamily residential properties8,017
 80
 535
 —
Commercial real estate5,762
 6
 1,097
 1
Loans secured by real estate17,384
 91
 3,909
 4
Agricultural loans834
 —
 755
 —
Commercial and industrial loans2,075
 2
 744
 1
Consumer loans296
 —
 306
 —
All other loans—
 —
 10
 —
Total loans$20,589
 $93
 $5,724
 $5
 For the nine months ended
 September 30, 2017 September 30, 2016
 
Average Investment
in Impaired Loans
 Interest Income Recognized 
Average Investment
in Impaired Loans
 Interest Income Recognized
Construction and land development$98
 $—
 $231
 $—
Agricultural real estate293
 —
 476
 —
1-4 Family residential properties3,003
 16
 1,344
 10
Multifamily residential properties10,839
 229
 539
 —
Commercial real estate4,638
 14
 1,064
 2
Loans secured by real estate18,871
 259
 3,654
 12
Agricultural loans900
 —
 696
 —
Commercial and industrial loans2,216
 6
 777
 1
Consumer loans307
 —
 388
 —
Total loans$22,294
 $265
 $5,515
 $13

The amount of interest income recognized by the Company within the periods stated above was due to loans modified in troubled debt restructuringsrestructuring that remainedremain on accrual status.  The balance of loans modified in troubled debt restructurings included in the impaired loans at September 30, 2017 stated above that were still accruing was $410,000 of 1-4 Family residential properties, $5,217,000 of multifamily residential properties, $347,000 of commercial real estate, $29,000 of commercial & industrial loans and $1,000 of consumer loans. The balance of loans modified in a troubled debt restructurings at September 30, 2016 included in the impaired loans stated above that were still accruing was $514,000 of 1-4 family residential properties, $3,430,000 of multifamily residential properties, $2,152,000 commercial real estate, $46,000 commercial and industrial loans, and $9,000 of consumer loans. For the nine months ended September 30, 2017 and 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.

23

Non-Accrual Loans






27






Non Accrual Loans

The following table presents the Company’s recorded balanceamortized cost basis of loans on nonaccrual status and of nonaccrual loans individually evaluated for which no allowance was recorded as September 30, 2017of March 31, 2023 and December 31, 20162022 (in thousands). This table excludes purchased impairedThere were no loans and performing troubled debt restructurings.past due over eighty-nine days that were still accruing.

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

Nonaccrual
with no
Allowance for

 

 

Total

 

 

Nonaccrual
with no
Allowance for

 

 

Total

 

 

 

Credit Loss

 

 

Nonaccrual

 

 

Credit Loss

 

 

Nonaccrual

 

Construction and land development

 

$

14

 

 

$

14

 

 

$

14

 

 

$

14

 

Agricultural real estate

 

 

1,246

 

 

 

1,246

 

 

 

1,258

 

 

 

1,258

 

1-4 family residential properties

 

 

3,167

 

 

 

3,442

 

 

 

4,532

 

 

 

4,943

 

Multifamily residential properties

 

 

1,162

 

 

 

1,162

 

 

 

672

 

 

 

672

 

Commercial real estate

 

 

6,076

 

 

 

6,076

 

 

 

7,640

 

 

 

7,640

 

Loans secured by real estate

 

 

11,665

 

 

 

11,940

 

 

 

14,116

 

 

 

14,527

 

Agricultural loans

 

 

483

 

 

 

483

 

 

 

57

 

 

 

57

 

Commercial and industrial loans

 

 

1,012

 

 

 

1,136

 

 

 

1,098

 

 

 

1,098

 

Consumer loans

 

 

239

 

 

 

239

 

 

 

274

 

 

 

274

 

All other loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total loans

 

$

13,399

 

 

$

13,798

 

 

$

15,545

 

 

$

15,956

 

 September 30,
2017		 December 31,
2016
Construction and land development$266
 $227
Agricultural real estate291
 205
1-4 Family residential properties2,630
 2,890
Multifamily residential properties2,208
 528
Commercial real estate5,341
 4,971
Loans secured by real estate10,736
 8,821
Agricultural loans834
 1,388
Commercial and industrial loans1,920
 1,430
Consumer loans294
 414
Total loans$13,784
 $12,053

Interest income that would have been recorded under the original terms of such nonaccrual loans totaled $366,00079,000 and $99,00095,000 for the ninethree months ended September 30, 2017March 31, 2023 and 2016,2022, respectively.



Purchased Credit-Impaired Loans

The Company acquired certain loans considered

Loan Modification Disclosures Pursuant 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 September 30, 2017 and December 31, 2016 are as follows (in thousands):

ASU 2022-02


 September 30,
2017		 December 31,
2016
1-4 Family residential properties$—
 $827
Multifamily residential properties3,387
 3,419
Commercial real estate2,085
 3,816
Loans secured by real estate5,472
 8,062
Commercial and industrial loans12
 24
 Carrying amount5,484
 8,086
Allowance for loan losses—
 14
Carrying amount, net of allowance$5,484
 $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 September 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 September 30, 2017.

28





Troubled Debt Restructuring

The balance of troubled debt restructurings ("TDRs") at September 30, 2017 and December 31, 2016 was $8.6 million and $10.9 million, respectively.  There was $99,000 and $196,000 in specific reserves established with respect to these loans as of September 30, 2017 and December 31, 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 presentsshows the Company’s recorded balanceamortized cost of troubled debt restructuringsloans at September 30, 2017March 31, 2023 that were both experiencing financial difficulty and December 31, 2016 (in thousands).

Troubled debt restructurings:September 30,
2017		 December 31,
2016
Construction and land development$—
 $227
1-4 Family residential properties843
 1,753
Multifamily residential properties5,217
 3,419
Commercial real estate671
 4,125
Loans secured by real estate6,731
 9,524
Agricultural loans828
 —
Commercial and industrial loans849
 1,040
Consumer loans210
 325
Total$8,618
 $10,889
Performing troubled debt restructurings: 
  
1-4 Family residential properties410
 $603
Multifamily residential properties5,217
 3,419
Commercial real estate347
 2,116
Loans secured by real estate5,974
 6,138
Commercial and industrial loans29
 41
Consumer loans1
 6
Total$6,004
 $6,185

modified segregated by portfolio segment and type of modification. The decrease in TDRs duringpercentage of the period was was primarily due toamortized cost of loans that paid off. were modified to borrowers in financial distress as compared to outstanding loans is also presented below.

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

Payment

 

 

Term

 

 

Interest

 

Class of

 

 

 

Principal

 

 

Delay

 

 

Extension

 

 

Rate

 

Financing

 

 

 

Forgiveness

 

 

Investment

 

 

Modifications

 

 

Reduction

 

Receivable

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and land development

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

0.00

%

Agricultural real estate

 

 

—

 

 

 

347

 

 

 

—

 

 

 

—

 

 

0.09

%

1-4 family residential properties

 

 

—

 

 

 

62

 

 

 

880

 

 

 

—

 

 

0.22

%

Multifamily residential properties

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

0.00

%

Commercial real estate

 

 

—

 

 

 

826

 

 

 

91

 

 

 

—

 

 

0.05

%

Loans secured by real estate

 

 

—

 

 

 

1,235

 

 

 

971

 

 

 

—

 

 

0.07

%

Agricultural loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

0.00

%

Commercial and industrial loans

 

 

—

 

 

 

421

 

 

 

319

 

 

 

—

 

 

0.07

%

Consumer loans

 

 

—

 

 

 

8

 

 

 

45

 

 

 

—

 

 

0.06

%

Other Loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

0.00

%

Total

 

$

—

 

 

$

1,664

 

 

$

1,335

 

 

$

—

 

 

0.06

%

The Company closely monitors the performance of loans that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presentsshows the performance of such loans that have been modified as TDRsin the last twelve months ended March 31, 2023.

 

 

30-59
Days Past
Due

 

 

60-89
Days Past
Due

 

 

90 Days or
More
Past Due

 

 

Total Past
Due

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

$

—

 

 

$

55

 

 

$

—

 

 

$

55

 

Loans secured by real estate

 

 

—

 

 

 

55

 

 

 

—

 

 

 

55

 

Total loans

 

$

—

 

 

$

55

 

 

$

—

 

 

$

55

 

24

The following table shows the financial effect of loan modifications during the ninecurrent quarter to borrowers experiencing financial difficulty for the three months endedSeptember 30, 2017 and 2016, as a result of various modified loan factors (in thousands): March 31, 2023.

 

 

Weighted Average

 

 

Weighted Average

 

 

 

Interest Rate

 

 

Term Extension

 

 

 

Reduction

 

 

(in months)

 

Commercial and industrial loans

 

 

4.75

%

 

 

5.13

 

Consumer loans

 

 

0.00

%

 

 

3.00

 

 

 

 

4.75

%

 

 

4.93

 

 September 30, 2017 September 30, 2016
 Number of Modifications Recorded Investment Type of Modifications Number of Modifications Recorded Investment Type of Modifications
Construction and land development—
 $—
 
 1

$231
 (b)(c)
1-4 Family residential properties1
 17
 (c) 1
 47
 (c)
Commercial real estate—
 —
 
 1
 43
 (b)(c)
Loans secured by real estate1
 17
   3
 321
  
Agricultural loans4
 828
 (b)(c)(d) —
 —
 
Commercial and industrial loans1
 27
 (c) 6
 405
 (b)(c)
Consumer Loans—
 —
 
 1
 20
 (c)
Total6
 $872
   10
 $746
  
Type of modifications:
(a) Reduction of stated interest rate of loan
(b) Change in payment terms
(c) Extension of maturity date
(d) Permanent reduction of the recorded investment

29





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 ninethree months ended September 30, 2017. March 31, 2023.

Troubled Debt Restructuring (TDR) Disclosures Prior to the Adoption of ASU 2022-02

There was onewere no loan and lease modifications classified as a TDR during the three months ended March 31, 2022. The classification between nonperforming and performing is determined at the time of modification. Modification programs focus on extending maturity dates or modifying payment patterns with most TDRs experiencing a combination of concessions. Modifications do not result in the contractual forgiveness of principal or interest. There were no modifications during the three months ended March 31, 2022 that resulted in an interest rate below market rate.

There were three loans modified as troubledtrouble debt restructuring during the prior twelve months that experienced defaults for the three months ended March 31, 2022. Default occurs when a loan is 90 days or more past due under the modified terms.

The following table shows the recorded investment of loans classified as troubled debt restructurings as of December 31, 2016.2022.

 

 

December 31, 2022

 

Performing TDRs

 

$

3,214

 

Nonperforming TDRs

 

 

1,850

 

Total TDRs

 

$

5,064

 

Purchased Credit Deteriorated (PCD) Loans


The balance of real estate owned includes $2,229,000 and $1,982,000 of foreclosed real estate properties recorded as a result of obtaining physical possession of the property at September 30, 2017 and December 31, 2016, respectively.

The Company also held $35,000 of repossessed collateral, consisting of machinery and equipment,has 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 processthere was, $429,000 and $661,000 at September 30, 2017 and December 31, 2016, respectively.acquisition, evidence of more than insignificant deterioration of credit quality since origination. The carrying amount of those loans at acquisition date is as follows (in thousands):

 

 

2022

 

 

 

Delta
Acquisition

 

Purchase price of purchase credit deteriorated loans at acquisition

 

$

18,796

 

Allowance for credit losses at acquisition

 

 

(863

)

Non-credit discount/(premium) at acquisition

 

 

(523

)

Fair value of purchased credit deteriorated loans at acquisition

 

$

17,410

 

 

 

 

 


Note 5 -- Goodwill and Intangible Assets


The Company has goodwill from business combinations, intangible assets from branch acquisitions, identifiable intangible assets assigned to core deposit relationships and customer lists of First Mid Wealth Management Company and First Mid Insurance. The following table presents gross carrying value and accumulated amortization by major intangible asset class as of September 30, 2017March 31, 2023 and December 31, 20162022 (in thousands):

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

Gross Carrying
Value

 

 

Accumulated
Amortization

 

 

Gross Carrying
Value

 

 

Accumulated
Amortization

 

Goodwill not subject to amortization (effective 1/1/02)

 

$

144,172

 

 

$

3,760

 

 

$

144,172

 

 

$

3,760

 

Intangibles from branch acquisition

 

 

3,015

 

 

 

3,015

 

 

 

3,015

 

 

 

3,015

 

Core deposit intangibles

 

 

45,355

 

 

 

29,481

 

 

 

45,355

 

 

 

28,432

 

Other intangibles

 

 

20,782

 

 

 

9,007

 

 

 

20,782

 

 

 

8,551

 

 

$

213,324

 

 

$

45,263

 

 

$

213,324

 

 

$

43,758

 

25

 September 30, 2017December 31, 2016
 Gross Carrying ValueAccumulated AmortizationGross Carrying ValueAccumulated Amortization
Goodwill not subject to amortization (effective 1/1/02)$63,910
$3,760
$61,551
$3,760
Intangibles from branch acquisition3,015
3,015
3,015
3,015
Core deposit intangibles19,862
11,053
19,862
9,644
Other intangibles3,731
2,239
3,731
2,102
 $90,518
$20,067
$88,159
$18,521


During the thirdfirst quarter of 2016,2022, goodwill of $16.8$28.6 million was provisionally recorded for the acquisition and merger of First Clover Leaf. GoodwillDelta Bancshares Company. This goodwill was subsequently adjusted to $19.1$28.2 million within the twelve month measurement period to reflect information collected through that period to record goodwill. The measurement period adjustment also increased other liabilities by $2 million and decreased other assets by $.3 million. The goodwill consists largelyproper tax treatment of the synergiesDelta assets and economies of scale expected from combining the operations of First Clover Leaf Bank with First Mid Bank.liabilities. All of thethis goodwill was assigned to the banking segmentunit of the Company. The Company expects this goodwill will not be deductible for tax purposes.

The following table provides a reconciliation of the purchase price paid for First Clover Leafthe acquisition of Delta and the amount of goodwill recorded (in thousands):

Unallocated purchase price

 

 

 

$

29,791

 

Less purchase accounting adjustments:

 

 

 

 

 

Fair value of securities

$

(2,836

)

 

 

 

Fair value of loans, net

 

(3,399

)

 

 

 

Fair value of premises and equipment

 

3,508

 

 

 

 

Fair value of time deposits

 

(1,759

)

 

 

 

Fair value of FHLB advances

 

(75

)

 

 

 

Core deposit intangible

 

5,920

 

 

 

 

Other assets

 

(570

)

 

 

 

Other liabilities

 

444

 

 

 

 

 

 

 

 

 

1,233

 

 

 

 

 

$

28,558

 

 

 

 

 

 

 


Purchase price (in excess of net book value) $8,741
Purchase accounting adjustments:  
     Fair value of securities737
 
     Fair value of loans, net3,475
 
     Fair value of OREO754
 
     Fair value of premises and equipment(1,963) 
     Fair value of time deposits1,994
 
     Fair value of FHLB advances113
 
     Fair value of subordinated debentures(731) 
     Core deposit intangible(4,660) 
     Other assets10,683
 
  10,402
Resulting goodwill from acquisition $19,143


30





As part of the acquisition of First Clover Leaf Bank, the

The Company acquiredhas mortgage servicing rights valued at $1,069,000.acquired in previous acquisitions. The following table summarizes the activity pertaining to mortgage servicing rights included in intangible assets as of September 30, 2017March 31, 2023, March 31, 2022 and December 31, 20162022 (in thousands):

 

 

March 31, 2023

 

 

March 31, 2022

 

 

December 31, 2022

 

Beginning balance

 

$

331

 

 

$

420

 

 

$

420

 

Adjustment to valuation reserve

 

 

—

 

 

 

106

 

 

 

108

 

Mortgage servicing rights amortized

 

 

(17

)

 

 

(101

)

 

 

(200

)

Interest only strip

 

 

(2

)

 

 

7

 

 

 

3

 

Ending balance

 

$

312

 

 

$

432

 

 

$

331

 

 September 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(105) (98)
Ending Balance$880
 $985

Total amortization expense for the ninethree months ended September 30, 2017March 31, 2023 and 20162022 was as follows (in thousands):

 

 

Three months ended March 31,

 

 

 

2023

 

 

2022

 

Core deposit intangibles

 

$

1,049

 

 

$

989

 

Customer list intangibles

 

 

456

 

 

 

432

 

Mortgage servicing rights

 

 

17

 

 

 

101

 

 

 

$

1,522

 

 

$

1,522

 


 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
Core deposit intangibles466
 395
 $1,409
 $1,161
Other intangibles46
 46
 137
 137
Mortgage servicing rights33
 14
 105
 14
 $545
 $455
 $1,651
 $1,312


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 01/01/23 - 03/31/23

 

$

1,522

 

Estimated amortization expense:

 

 

 

For period 04/01/23 - 12/31/23

 

 

5,862

 

For year ended 12/31/24

 

 

5,371

 

For year ended 12/31/25

 

 

4,736

 

For year ended 12/31/26

 

 

3,835

 

For year ended 12/31/27

 

 

3,254

 


Aggregate amortization expense: 
     For period 01/01/17-09/30/17$1,651
Estimated amortization expense: 
     For period 10/01/17-12/31/17501
     For year ended 12/31/181,954
     For year ended 12/31/191,778
     For year ended 12/31/201,576
     For year ended 12/31/211,304
     For year ended 12/31/221,195


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, 20172022 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 $116.4$228.7 million at September 30, 2017, a decreaseMarch 31, 2023, an increase of $69.4$7.3 million from $185.8 $221.4

26

million at December 31, 2016.2022. The decreaseincrease during the first ninethree months of 20172023 was primarily due to decreases in balances of customers due to changes in business cash flow needs for their businesses.needs. All of the transactions have overnight maturities with a weighted average rate of 0.09%2.83%.



31





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


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

 

 

March 31, 2023

 

 

December 31, 2022

 

US Treasury securities and obligations of U.S. government corporations and agencies

 

$

57,723

 

 

$

47,775

 

Mortgage-backed securities: GSE: residential

 

 

170,941

 

 

 

173,639

 

Total

 

$

228,664

 

 

$

221,414

 

 

 

 

 

 

 

 

 September 30, 2017December 31, 2016
US Treasury securities and obligations of U.S. government corporations & agencies$88,435
$100,526
Obligations of states and political subdivisions—
1,173
Mortgage-backed securities: GSE: residential27,925
84,064
Total$116,360
$185,763


FHLB borrowings, increased to $87were $594.7 million and $464.7 million at September 30, 2017 compared to $40 millionMarch 31, 2023 and December 31, 2016.2022, respectively. At September 30, 2017March 31, 2023 the advances were as follows:


$20 million overnight advance at 1.20%

Advance

 

 

Term (in years)

 

Interest Rate

 

Maturity Date

$

110,000,000

 

 

overnight

 

4.86%

 

April 1, 2023

 

5,000,000

 

 

4.0

 

2.44%

 

May 30, 2023

 

5,000,000

 

 

1.0

 

2.00%

 

May 31, 2023

 

25,000,000

 

 

9 months

 

4.34%

 

June 30, 2023

 

5,000,000

 

 

3.5

 

1.51%

 

July 31, 2023

 

5,000,000

 

 

3.5

 

0.77%

 

September 11, 2023

 

25,000,000

 

 

1.0

 

4.81%

 

November 10, 2023

 

25,000,000

 

 

1.5

 

4.69%

 

May 10, 2024

 

25,000,000

 

 

2.0

 

4.59%

 

November 8, 2024

 

10,000,000

 

 

5.0

 

1.45%

 

December 31, 2024

 

5,000,000

 

 

5.0

 

0.91%

 

March 10, 2025

 

4,746,475

 

 

10.0

 

2.64%

 

December 23, 2025

 

50,000,000

 

 

4.0

 

2.98%

 

December 8, 2027

 

50,000,000

 

 

4.0

 

3.49%

 

December 8, 2027

 

50,000,000

 

 

4.0

 

3.28%

 

December 8, 2027

 

25,000,000

 

 

5.0

 

3.56%

 

March 10, 2028

 

25,000,000

 

 

5.0

 

3.35%

 

March 13, 2028

 

25,000,000

 

 

5.0

 

3.47%

 

March 13, 2028

 

5,000,000

 

 

10.0

 

1.15%

 

October 3, 2029

 

5,000,000

 

 

10.0

 

1.12%

 

October 3, 2029

 

10,000,000

 

 

10.0

 

1.39%

 

December 31, 2029

 

50,000,000

 

 

10.0

 

2.77%

 

December 13, 2032

 

25,000,000

 

 

10.0

 

2.60%

 

March 14, 2033

 

25,000,000

 

 

10.0

 

2.40%

 

March 15, 2033

 

 

 

 

 

 

 

 

27

$5 million advance with a 3-year maturity, at 1.30%, due 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 2.5-year maturity, at 1.67%, due January 31, 2020
$5 million advance with a 3-year maturity, at 1.75%, due July 31, 2020
$5 million advance with a 6-year maturity, at 2.30%, due August 24, 2020
$5 million advance with a 3.5-year maturity, at 1.83%, due February 1, 2021
$5 million advance with a 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




32





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 1Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange.  Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2Valuations for assets and liabilities traded in less active dealer or broker markets.  Valuations are obtained from third party pricing services for identical or comparable assets or liabilities which use observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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.

hierarchy.

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


Derivatives. The trust preferred securities are collateralized debt obligation securities that are backed by trust preferred securities issued by banks, thrifts, and insurance companies. Thefair value of derivatives is based on models using observable market for these securities at September 30, 2017 is not active and markets for similar securities are also not active. The inactivity was evidenced first by a significant wideningdata as of the bid-ask spreadmeasurement date and are therefore classified 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 resultLevel 2 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 September 30, 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.

33



hierarchy.

28



The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall as of September 30, 2017March 31, 2023 and December 31, 20162022 (in thousands):

 

 

Fair Value Measurements Using

 

 

 

 

 

 

Quoted Prices in
Active Markets
for Identical
Assets

 

 

Significant
Other
Observable
Inputs

 

 

Significant
Unobservable
Inputs

 

 

 

Fair Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. government corporations and agencies

 

$

223,545

 

 

$

—

 

 

$

223,545

 

 

$

—

 

Obligations of states and political subdivisions

 

 

284,997

 

 

 

—

 

 

 

284,997

 

 

 

—

 

Mortgage-backed securities

 

 

624,272

 

 

 

—

 

 

 

624,272

 

 

 

—

 

Other securities

 

 

79,884

 

 

 

—

 

 

 

69,874

 

 

 

10,010

 

Total available-for-sale securities

 

 

1,212,698

 

 

 

—

 

 

 

1,202,688

 

 

 

10,010

 

Equity securities

 

 

362

 

 

 

362

 

 

 

—

 

 

 

—

 

Derivative assets: interest rate swaps

 

 

3,353

 

 

 

—

 

 

 

3,353

 

 

 

—

 

Total assets

 

$

1,216,413

 

 

$

362

 

 

$

1,206,041

 

 

$

10,010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities: interest rate swaps

 

$

2,525

 

 

$

—

 

 

$

2,525

 

 

$

—

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. government corporations and agencies

 

$

220,527

 

 

$

—

 

 

$

220,527

 

 

$

—

 

Obligations of states and political subdivisions

 

 

287,698

 

 

 

—

 

 

 

287,698

 

 

 

—

 

Mortgage-backed securities

 

 

627,880

 

 

 

—

 

 

 

627,880

 

 

 

—

 

Other securities

 

 

82,880

 

 

 

—

 

 

 

73,630

 

 

 

9,250

 

Total available-for-sale securities

 

 

1,218,985

 

 

 

—

 

 

 

1,209,735

 

 

 

9,250

 

Equity securities

 

 

311

 

 

 

311

 

 

 

—

 

 

 

—

 

Derivative assets: interest rate swaps

 

 

4,253

 

 

 

—

 

 

 

4,253

 

 

 

—

 

Total assets

 

$

1,223,549

 

 

$

311

 

 

$

1,213,988

 

 

$

9,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities: interest rate swaps

 

$

3,100

 

 

$

—

 

 

$

3,100

 

 

$

—

 

29

   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)
September 30, 2017       
Available-for-sale securities:       
U.S. Treasury securities and obligations of U.S. government corporations and agencies$126,401
 $—
 $126,401
 $—
Obligations of states and political subdivisions172,526
 —
 172,526
 —
Mortgage-backed securities315,357
 —
 315,357
 —
Trust preferred securities2,701
 —
 —
 2,701
Other securities4,219
 175
 4,044
 —
Total available-for-sale securities$621,204
 $175
 $618,328
 $2,701
December 31, 2016       
Available-for-sale securities:       
U.S. Treasury securities and obligations of U.S. government corporations and agencies$136,324
 $—
 $136,324
 $—
Obligations of states and political subdivisions162,705
 —
 162,705
 —
Mortgage-backed securities314,991
 —
 314,991
 —
Trust preferred securities1,652
 —
 —
 1,652
Other securities4,176
 144
 4,032
 —
Total available-for-sale securities$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 nine months endedSeptember 30, 2017 March 31, 2023 and 20162022 is summarized as follows (in thousands):

 

 

Three months ended March 31, 2023

 

 

 

Obligation of State and Political Subdivisions

 

 

Other

 

 

Total

 

Beginning balance

 

$

—

 

 

$

10,000

 

 

$

10,000

 

Transfers into Level 3

 

 

—

 

 

 

10

 

 

 

10

 

Transfers out of Level 3

 

 

—

 

 

 

—

 

 

 

—

 

Total gains or losses:

 

 

 

 

 

 

 

 

 

Included in net income

 

 

—

 

 

 

—

 

 

 

—

 

Included in other comprehensive income (loss)

 

 

—

 

 

 

—

 

 

 

—

 

Purchases, issuances, sales and settlements:

 

 

 

 

 

 

 

 

 

Purchases

 

 

—

 

 

 

—

 

 

 

—

 

Issuances

 

 

—

 

 

 

—

 

 

 

—

 

Sales

 

 

—

 

 

 

—

 

 

 

—

 

Settlements

 

 

—

 

 

 

—

 

 

 

—

 

Ending balance

 

$

—

 

 

$

10,010

 

 

$

10,010

 

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

 

$

—

 

 

$

—

 

 

$

—

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31, 2022

 

 

 

Obligation of State and Political Subdivisions

 

 

Other

 

 

Total

 

Beginning balance

 

$

99

 

 

$

—

 

 

$

99

 

Transfers into Level 3

 

 

—

 

 

 

—

 

 

 

—

 

Transfers out of Level 3

 

 

—

 

 

 

—

 

 

 

—

 

Total gains or losses:

 

 

 

 

 

 

 

 

 

Included in net income

 

 

—

 

 

 

—

 

 

 

—

 

Included in other comprehensive income (loss)

 

 

—

 

 

 

—

 

 

 

—

 

Purchases, issuances, sales and settlements:

 

 

 

 

 

 

 

 

 

Purchases

 

 

—

 

 

 

—

 

 

 

—

 

Issuances

 

 

—

 

 

 

—

 

 

 

—

 

Sales

 

 

—

 

 

 

—

 

 

 

—

 

Settlements

 

 

(99

)

 

 

—

 

 

 

(99

)

Ending balance

 

$

—

 

 

$

—

 

 

$

—

 

Total gains or losses for the period included in net income attributable to the change in unrealized gains or losses related to assets and liabilities still held at the reporting date

 

$

—

 

 

$

—

 

 

$

—

 

30

  Trust Preferred Securities
  Three months ended Nine months ended
  September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Beginning balance $2,424
 $1,746
 $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) 318
 (66) 1,166
 (190)
Purchases, issuances, sales and settlements:  
   
  
Purchases —
 —
 —
 —
Issuances —
 —
 —
 —
Sales —
 —
 —
 —
Settlements (41) (19) (117) (55)
Ending balance $2,701
 $1,661
 $2,701
 $1,661
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 $—
 $—
 $—
 $—

34





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).

Collateral Dependent Loans. 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. ImpairedIndividually evaluated 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 impairedindividually evaluated 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 September 30, 2017March 31, 2023 was $7,092,0001.4 million and a fair value of $6,793,0001.2 million resulting in specific loss exposures of $299,000.


0.3 million.

When there is little prospect of collecting principal or interest, loans, or portions of loans, may be charged-off to the allowance for loancredit 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 loancredit 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 September 30, 2017March 31, 2023 was $2,229,000.4.0 million. Other real estate owned included in the total carrying amount and measured at fair value on a nonrecurring basis during the period amounted to $307,0000.2 million.

Mortgage Servicing Rights. As of March 31, 2023, mortgage servicing rights had a carrying value of $0.3 million and a fair value of $0.5 million resulting in a valuation reserve of $0.

The fair value used to determine the valuation reserve for mortgage servicing rights was estimated using the discounted cash flow models. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the fair value hierarchy.


The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2017March 31, 2023 and December 31, 20162022 (in thousands):

 

 

Fair Value Measurements Using

 

 

 

 

 

 

Quoted Prices in
Active Markets
for Identical
Assets

 

 

Significant
Other
Observable
Inputs

 

 

Significant
Unobservable
Inputs

 

 

 

Fair Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Collateral dependent loans

 

$

1,158

 

 

$

—

 

 

$

—

 

 

$

1,158

 

Foreclosed assets held for sale

 

 

151

 

 

 

—

 

 

 

—

 

 

 

151

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Collateral dependent loans

 

$

2,548

 

 

$

—

 

 

$

—

 

 

$

2,548

 

Foreclosed assets held for sale

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31

 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)
September 30, 2017       
Impaired loans (collateral dependent)$6,793
 $—
 $—
 $6,793
Foreclosed assets held for sale307
 —
 —
 307
December 31, 2016 
  
  
  
Impaired loans (collateral dependent)$6,938
 $—
 $—
 $6,938
Foreclosed assets held for sale173
 —
 —
 173


35





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, 2017March 31, 2023 and December 31, 2016 (in thousands).2022.

March 31, 2023

 

Fair Value

 

 

Valuation
Technique

 

Unobservable Inputs

 

Range

 

Weighted Average

Collateral dependent loans

 

$

1,158

 

 

Third party
valuations

 

Discount to reflect realizable value

 

0% - 40%

 

20%

Foreclosed assets held for sale

 

 

151

 

 

Third party
valuations

 

Discount to reflect realizable value less estimated selling costs

 

0% - 40%

 

35%

December 31, 2022

 

Fair Value

 

 

Valuation
Technique

 

Unobservable Inputs

 

Range

 

Weighted Average

Collateral dependent loans

 

$

2,548

 

 

Third party
valuations

 

Discount to reflect realizable value

 

0% - 40%

 

20%

32

September 30, 2017Fair Value Valuation Technique Unobservable Inputs Range (Weighted Average)
Trust Preferred Securities$2,701
 Discounted cash flow Discount rate 13.3%
  
Constant prepayment rate (1) 1.3%   
Cumulative projected prepayments 21.9%
  
Probability of default 0.6%
  
Projected cures given deferral 0.0%
  
Loss severity 97.7%
  
Impaired loans (collateral dependent)$6,793
 Third party valuations Discount to reflect realizable value 0%-40%(20%)
Foreclosed assets held for sale
 
$307
 Third party valuations Discount to reflect realizable value less estimated selling costs 0%-40%(35%)
December 31, 2016Fair Value Valuation Technique Unobservable Inputs Range (Weighted Average)
Trust Preferred Securities$1,652
 Discounted cash flow Discount rate 13.6%   
Constant prepayment rate (1) 1.3%   
Cumulative projected prepayments 22.4%   
Probability of default 0.5%   
Projected cures given deferral 0.0%   
Loss severity 97.6%   
Impaired loans (collateral dependent)$6,938
 Third party valuations Discount to reflect realizable value 0%-40%(20%)
Foreclosed assets held for sale
 
$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.


36





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 September 30, 2017March 31, 2023 and December 31, 20162022 in accordance with FAS 107-1 and APB 28-1, codified with ASC 805825 (in thousands):


 

 

Carrying
Amount

 

 

Fair
Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

161,236

 

 

$

161,236

 

 

$

161,236

 

 

$

—

 

 

$

—

 

Federal funds sold

 

 

7,898

 

 

 

7,898

 

 

 

7,898

 

 

 

—

 

 

 

—

 

Certificates of deposit investments

 

 

1,715

 

 

 

1,715

 

 

 

—

 

 

 

1,715

 

 

 

—

 

Available-for-sale securities

 

 

1,212,698

 

 

 

1,212,698

 

 

 

—

 

 

 

1,202,698

 

 

 

10,000

 

Held-to-maturity securities

 

 

2,979

 

 

 

2,979

 

 

 

2,979

 

 

 

—

 

 

 

—

 

Equity securities

 

 

362

 

 

 

362

 

 

 

362

 

 

 

—

 

 

 

—

 

Loans held for sale

 

 

999

 

 

 

999

 

 

 

—

 

 

 

999

 

 

 

—

 

Loans net of allowance for credit losses

 

 

4,701,409

 

 

 

4,497,336

 

 

 

—

 

 

 

—

 

 

 

4,497,336

 

Interest receivable

 

 

28,729

 

 

 

28,729

 

 

 

—

 

 

 

28,729

 

 

 

—

 

Federal Reserve Bank stock

 

 

17,050

 

 

 

17,050

 

 

 

—

 

 

 

17,050

 

 

 

—

 

Federal Home Loan Bank stock

 

 

23,365

 

 

 

23,365

 

 

 

—

 

 

 

23,365

 

 

 

—

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

5,030,778

 

 

$

5,024,415

 

 

$

—

 

 

$

4,200,115

 

 

$

824,300

 

Securities sold under agreements to repurchase

 

 

228,664

 

 

 

228,486

 

 

 

—

 

 

 

228,486

 

 

 

—

 

Interest payable

 

 

4,732

 

 

 

4,732

 

 

 

—

 

 

 

4,732

 

 

 

—

 

Federal Home Loan Bank borrowings

 

 

595,021

 

 

 

591,398

 

 

 

—

 

 

 

591,398

 

 

 

—

 

Subordinated debt, net

 

 

94,593

 

 

 

89,944

 

 

 

—

 

 

 

89,944

 

 

 

—

 

Junior subordinated debentures, net

 

 

19,406

 

 

 

17,186

 

 

 

—

 

 

 

17,186

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

144,806

 

 

$

144,806

 

 

$

144,806

 

 

$

—

 

 

$

—

 

Federal funds sold

 

 

7,627

 

 

 

7,627

 

 

 

7,627

 

 

 

—

 

 

 

—

 

Certificates of deposit investments

 

 

1,470

 

 

 

1,470

 

 

 

—

 

 

 

1,470

 

 

 

—

 

Available-for-sale securities

 

 

1,218,986

 

 

 

1,218,986

 

 

 

—

 

 

 

1,209,736

 

 

 

9,250

 

Held-to-maturity securities

 

 

2,953

 

 

 

2,953

 

 

 

2,953

 

 

 

—

 

 

 

—

 

Equity securities

 

 

311

 

 

 

311

 

 

 

311

 

 

 

—

 

 

 

—

 

Loans held for sale

 

 

338

 

 

 

338

 

 

 

—

 

 

 

338

 

 

 

—

 

Loans net of allowance for credit losses

 

 

4,766,780

 

 

 

4,460,661

 

 

 

—

 

 

 

—

 

 

 

4,460,661

 

Interest receivable

 

 

28,357

 

 

 

28,357

 

 

 

—

 

 

 

28,357

 

 

 

—

 

Federal Reserve Bank stock

 

 

17,050

 

 

 

17,050

 

 

 

—

 

 

 

17,050

 

 

 

—

 

Federal Home Loan Bank stock

 

 

18,440

 

 

 

18,440

 

 

 

—

 

 

 

18,440

 

 

 

—

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

5,257,001

 

 

$

5,257,748

 

 

$

—

 

 

$

4,550,222

 

 

$

707,526

 

Federal funds purchased

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Securities sold under agreements to repurchase

 

 

221,414

 

 

 

221,260

 

 

 

—

 

 

 

221,260

 

 

 

—

 

Interest payable

 

 

3,346

 

 

 

3,346

 

 

 

—

 

 

 

3,346

 

 

 

—

 

Federal Home Loan Bank borrowings

 

 

465,071

 

 

 

459,327

 

 

 

—

 

 

 

459,327

 

 

 

—

 

Other borrowings

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Subordinated debt, net

 

 

94,553

 

 

 

87,977

 

 

 

—

 

 

 

87,977

 

 

 

—

 

Junior subordinated debentures, net

 

 

19,364

 

 

 

17,164

 

 

 

—

 

 

 

17,164

 

 

 

—

 

 
Carrying
Amount
 
Fair
Value
 Level 1 Level 2 Level 3
September 30, 2017         
Financial Assets         
Cash and due from banks$69,153
 $69,153
 $69,153
 $—
 $—
Federal funds sold490
 490
 490
 —
 —
Certificates of deposit investments1,685
 1,708
 —
 1,708
 —
Available-for-sale securities621,204
 621,204
 175
 618,328
 2,701
Held-to-maturity securities69,306
 69,137
 —
 69,137
 —
Loans held for sale2,079
 2,079
 —
 2,079
 —
Loans net of allowance for loan losses1,846,894
 1,842,343
 —
 —
 1,842,343
Interest receivable10,876
 10,876
 —
 10,876
 —
Federal Reserve Bank stock5,160
 5,160
 —
 5,160
 —
Federal Home Loan Bank stock3,302
 3,302
 —
 3,302
 —
Financial Liabilities 
  
  
  
  
Deposits$2,217,477
 $2,217,528
 $—
 $1,897,161
 $320,367
Securities sold under agreements to repurchase116,360
 116,348
 —
 116,348
 —
Interest payable552
 552
 —
 552
 —
Federal Home Loan Bank borrowings87,052
 87,396
 —
 87,396
 —
Other borrowings31,250
 31,250
 20,000
 11,250
 —
Junior subordinated debentures23,980
 17,640
 —
 17,640
 —

37



33



 
Carrying
Amount
 
Fair
Value
 Level 1 Level 2 Level 3
December 31, 2016         
Financial Assets         
Cash and due from banks$137,002
 $137,002
 $137,002
 $—
 $—
Federal funds sold38,900
 38,900
 38,900
 —
 —
Certificates of deposit investments14,643
 14,651
 —
 14,651
 —
Available-for-sale securities619,848
 619,848
 144
 618,052
 1,652
Held-to-maturity securities74,231
 73,096
 —
 73,096
 —
Loans held for sale1,175
 1,175
 —
 1,175
 —
Loans net of allowance for loan losses1,808,064
 1,795,764
 —
 —
 1,795,764
Interest receivable10,553
 10,553
 —
 10,553
 —
Federal Reserve Bank stock3,949
 3,949
 —
 3,949
 —
Federal Home Loan Bank stock4,389
 4,389
 —
 4,389
 —
Financial Liabilities 
  
      
Deposits$2,329,887
 $2,331,725
 $—
 $1,976,806
 $354,919
Securities sold under agreements to repurchase185,763
 185,766
 —
 185,766
 —
Interest payable535
 535
 —
 535
 —
Federal Home Loan Bank borrowings40,094
 40,318
 —
 40,318
 —
Other borrowings18,063
 18,063
 —
 18,063
 —
Junior subordinated debentures23,917
 17,068
 —
 17,068
 —


Note 8 --– Business Combinations


First Clover Leaf Financial Corp

On April 26, 2016,July 28, 2021, the Company and Brock Sub LLC, a newly formed Delaware limited liability company and wholly-owned subsidiary of the Company (“Delta Merger Sub”), entered into an Agreement and Plan of Merger (the "Merger Agreement"“Delta Merger Agreement”) with First Clover Leaf Financial Corp.,Delta Bancshares Company, a MarylandMissouri corporation ("First Clover Leaf"(“Delta”), pursuant to which, amongstamong other things, the Company agreed to acquire 100%100% of the issued and outstanding shares of First Clover LeafDelta pursuant to a business combination whereby First Clover Leaf would mergeDelta merged with and into Delta Merger Sub, whereupon the Company, with the Companyseparate corporate existence of Delta ceased and Delta Merger Sub continued as the surviving entitycompany and a wholly-owned subsidiary of First Mid (the "Merger"“Delta Merger”).


At The Delta Merger was completed on February 14, 2022.

Subject to the terms and conditions of the Delta Merger Agreement, at the effective time of the Delta Merger, 25%each share of the shares of First Clover Leaf common stock, par value $10.00 per share, of Delta issued and outstanding immediately prior to the effective time of the Delta Merger (other than shares held in treasury by Delta) converted into and became the right to receive $12.87cash and shares of common stock, par value $4.00 per share, for an approximate aggregate total of $22,545,000, and 75% of the Company and cash in lieu of fractional shares, less any applicable taxes required to be withheld, and subject to certain potential adjustments. On an aggregate basis, the total consideration paid by the Company at the closing of the Delta Merger to Delta’s shareholders and option holders was approximately $15.15 million in cash and 2,292,270shares of First Clover LeafCompany common stock. Delta’s outstanding stock issuedoptions vested upon consummation of the Delta Merger, and all outstanding immediatelyDelta options that were unexercised prior to the effective time of the Delta 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 Merger.


First Clover Leaf had $659 million in assets at book value including $449 million in loans and $535 million in deposits. As a result of the acquisition, the Company increased its deposit base and reduced transaction costs. The Company also expects to reduce costs through economies of scale.

cashed out.

The acquisition was accounted for under the acquisition method of accounting in accordance with ASC 805, “Business Combinations ("ASC 805"),” and accordingly the assets and liabilities were recorded at their estimated fair values onas of the date of acquisition. Fair values are subject to refinement for up to one year after the closing date of September 8, 2016February 14, 2022 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 $19.1$28.2 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.

 

 

Acquired

 

 

Fair Value

 

 

As Recorded by

 

(In thousands)

 

Book Value

 

 

Adjustments

 

 

Jefferson Bank

 

Assets

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

82,473

 

 

$

—

 

 

$

82,473

 

Investment securities

 

 

184,959

 

 

 

(2,836

)

 

 

182,123

 

Loans

 

 

426,433

 

 

 

(7,924

)

 

 

418,509

 

Allowance for credit losses

 

 

(5,388

)

 

 

4,525

 

 

 

(863

)

Premises and equipment

 

 

5,522

 

 

 

3,508

 

 

 

9,030

 

Goodwill

 

 

14

 

 

 

28,544

 

 

 

28,558

 

Core deposit intangible

 

 

—

 

 

 

5,920

 

 

 

5,920

 

Bank owned life insurance

 

 

15,822

 

 

 

 

 

 

15,822

 

Right of use asset

 

 

—

 

 

 

717

 

 

 

717

 

Other assets

 

 

9,061

 

 

 

(1,287

)

 

 

7,774

 

Total assets acquired

 

$

718,896

 

 

$

31,167

 

 

$

750,063

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Deposits

 

$

558,619

 

 

$

1,759

 

 

$

560,378

 

Securities sold under agreements to repurchase

 

 

35,523

 

 

 

—

 

 

 

35,523

 

FHLB advances

 

 

45,000

 

 

 

75

 

 

 

45,075

 

Lease liability

 

 

—

 

 

 

717

 

 

 

717

 

Other liabilities

 

 

2,209

 

 

 

(1,161

)

 

 

1,048

 

Total liabilities assumed

 

 

641,351

 

 

 

1,390

 

 

 

642,741

 

Net assets acquired

 

$

77,545

 

 

$

29,777

 

 

$

107,322

 

 

 

 

 

 

 

 

 

 

 

Consideration paid

 

 

 

 

 

 

 

 

 

Cash

 

 

 

 

 

 

 

$

15,150

 

Common stock

 

 

 

 

 

 

 

 

92,172

 

 

 

 

 

 

 

 

 

$

107,322

 

 

 

 

 

 

 

 

 

 

 

34




38





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 AdjustmentsAs Recorded by
First Clover Leaf Bank
Assets


     Cash$59,320
$—
$59,320
     Investment Securities109,911
(737)109,174
     Loans448,668
(10,403)438,265
     Allowance for loan losses(6,928)6,928
—
     Other real estate owned2,741
(754)1,987
     Premises and equipment9,618
1,963
11,581
     Goodwill11,385
7,758
19,143
     Core deposit intangible99
4,561
4,660
     Other assets23,974
2,875
26,849
              Total assets acquired$658,788
$12,191
$670,979
Liabilities and Stockholders' Equity


     Deposits$534,692
$1,994
$536,686
     Securities sold under agreements to repurchase23,263
—
23,263
     FHLB advances15,000
113
15,113
     Subordinated debentures4,000
(731)3,269
     Other liabilities2,103
2,074
4,177
              Total liabilities assumed579,058
3,450
582,508
              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 $3,302,000,$2.6 million, pre-tax, of acquisition costs for the First Clover Leaf acquisition of which $1,962,000Delta Merger. Of this amount, $2.1 million was recorded for 2017.recognized during 2022. These costs are included in salaries and benefits, legal and professional and other expense. Of the $10.4$7.9 million difference between the fair value and acquired value of the purchasedadjustment to loans, approximately $8.4$8.2 million is being accreted to interest income over the remaining term of the loans. The remaining $300,000 was the elimination of deferred fees and unearned discounts previously recorded by Jefferson Bank. The Company also recorded approximately $863,000 directly to the allowance for credit losses for loans identified as PCD. Of the $426 million of loans acquired, approximately $18.8 million was identified as PCD.

The differences between fair value and acquired value of the assumed time deposits of $1.99$1.8 million ofand the assumed FHLB advances of $113,000 and of the assumed subordinated debentures of $(731,000)$75,000, are being amortized to interest expense over the remaining life of the liabilities. The core deposit intangible asset, with a fair value of $4.7$5.9 million, will beis being amortized on an accelerated basis over its estimated life of 10 years.















39





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 acquisitionDelta Merger taken place at the beginning of the period (dollars in thousands)thousands, except per share data):

 

 

Three months ended

 

 

 

March 31, 2022

 

 

 

 

 

Net interest income

 

$

44,200

 

Provision for loan losses

 

 

2,952

 

Non-interest income

 

 

21,088

 

Non-interest expense

 

 

40,575

 

Income before taxes

 

 

21,761

 

Income tax expense

 

 

4,797

 

Net income

 

$

16,964

 

 

 

 

 

Earnings per share

 

 

 

Basic

 

$

0.88

 

Diluted

 

 

0.88

 

 

 

 

 

Basic weighted average shares o/s

 

 

19,295,860

 

Diluted weighted average shares o/s

 

 

19,358,457

 

Note 9 -- Leases

Effective January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842). As of March 31, 2023, substantially all the Company's leases are operating leases for real estate property for bank branches, ATM locations, and office space.

These leases are generally for periods of 1 to 25 years with various renewal options. The Company elected the optional transition method permitted by Topic 842. Under this method, the Company recognizes and measures leases that exist at the application date and prior comparative periods are not adjusted. In addition, the Company elected the package of practical expedients:

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

Three months endedNine months ended

September 30,September 30,

20162016
Net interest income$21,255
$63,727
Provision for loan losses1,363
2,209
Non-interest income7,322
21,640
Non-interest expense20,039
57,145
  Income before income taxes7,175
26,013
Income tax expense2,481
9,079
   Net income$4,694
$16,934
   
Earnings per share

   Basic$0.45
$1.72
   Diluted$0.45
$1.68
   
Basic weighted average shares outstanding10,497,072
9,372,547
Diluted weighted average shares outstanding10,504,046
10,057,398
2.
An entity need not reassess the lease classification for any expired or existing leases.

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

The unaudited pro forma condensed combined financial statementsCompany has also elected the practical expedient, which may be elected separately or in conjunction with the package noted above, to use hindsight in determining the lease term and in assessing the right-of-use assets. This expedient must be applied consistently to all leases. Lastly, the Company has elected to use the practical expedient to include both lease and non-lease components as a single component and account for it as a lease. In addition, the Company has elected to not include short-term leases (i.e. leases with terms of twelve months or less) or equipment leases (primarily copiers) deemed immaterial, on the consolidated balance sheets.

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

35

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

 

 

March 31, 2023

 

 

March 31, 2022

 

 

December 31, 2022

 

Operating lease right-of-use assets

 

$

15,092

 

 

$

15,242

 

 

$

15,774

 

Operating lease liabilities

 

 

15,353

 

 

 

15,458

 

 

 

16,035

 

Weighted-average remaining lease term (in years)

 

 

5.6

 

 

 

6.9

 

 

 

5.8

 

Weighted-average discount rate

 

 

2.68

%

 

 

2.67

%

 

 

2.67

%

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

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

Year ending December 31,

 

 

 

2023

 

$

2,282

 

2024

 

 

2,610

 

2025

 

 

2,178

 

2026

 

 

2,067

 

2027

 

 

3,557

 

Thereafter

 

 

4,488

 

Total lease payments

 

 

17,182

 

Less imputed interest

 

 

(1,829

)

Total lease liability

 

$

15,353

 

The components of lease expense for the three months ended March 31, 2023 and 2022 were as follows (in thousands):

 

 

Three months ended March 31,

 

 

 

2023

 

 

2022

 

Operating lease cost

 

$

753

 

 

$

629

 

Short-term lease cost

 

 

30

 

 

 

27

 

Variable lease cost

 

 

223

 

 

 

266

 

Total lease cost

 

 

1,006

 

 

 

922

 

Income from subleases

 

 

(94

)

 

 

(100

)

Net lease cost

 

$

912

 

 

$

822

 

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

 

 

March 31, 2023

 

 

March 31, 2022

 

Operating cash flows from operating leases

 

$

781

 

 

$

722

 

Note 10 – Derivatives

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

36

Derivatives Designated as Hedging Instruments

The following table provides the outstanding notional balances and fair values of outstanding derivatives designated as hedging instruments as of March 31, 2023 and December 31, 2022 (in thousands):

 

 

Balance
Sheet
Location

 

Weighted
Average
Remaining
Maturity
(Years)

 

Notional
Amount

 

 

Estimated
Value

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

Fair value hedges:

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements

 

Other liabilities

 

6.1

 

$

13,384

 

 

$

(2,525

)

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

Fair value hedges:

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements

 

Other liabilities

 

6.3

 

$

13,448

 

 

$

(3,100

)

The effects of the Company as of and afterfair value hedges on the First Clover Leaf business combination may not be indicative of the results that actually would have occurred if the combination had been in effectCompany's income statement during the periods presented orthree months ended March 31, 2023 and 2022 were as follows (in thousands):

 

 

 

 

Three months ended March 31,

 

Derivative

 

Location of Gain (Loss) on Derivatives

 

2023

 

 

2022

 

Interest rate swap agreements

 

Interest income on loans

 

$

(325

)

 

$

(785

)

 

 

 

 

Three months ended March 31,

 

Derivative

 

Location of Gain (Loss) on Hedged Items

 

2023

 

 

2022

 

Interest rate swap agreements

 

Interest income on loans

 

$

325

 

 

$

785

 

As of March 31, 2023, the results that may be attainedfollowing amounts were recorded on the consolidated balance sheet related to cumulative basis adjustment for fair value hedges (in thousands):

Line Item in the Balance Sheet in Which
the Hedge Item is Included

 

Carrying Amount of the
Hedged Asset

 

 

Cumulative Amount of Fair Value Hedging
Adjustment Included in the Carrying
Amount of the Hedged Asset

 

Loans

 

$

12,556

 

 

$

(828

)

Derivatives Not Designated as Hedging Instruments

The following amounts represent the notional amounts and gross fair value of derivative contracts not designated as hedging instruments outstanding during the three months ended March 31, 2023 (dollars in the future.









40



thousands):

March 31, 2023

 

Balance
Sheet
Location

 

Weighted
Average
Remaining
Maturity
(Years)

 

Notional
Amount

 

 

Estimated
Value

 

Interest rate swap agreements

 

Other assets

 

4.8

 

$

38,579

 

 

$

3,353

 

Interest rate swap agreements

 

Other liabilities

 

4.8

 

 

38,579

 

 

 

(3,353

)

37



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 months ended March 31, 2023 and nine-month periods ended September 30, 2017 and 2016.2022. 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 reportdocument may contain certain forward-looking statements about First Mid and Blackhawk, such as discussions of the Company’sFirst Mid’s and Blackhawk’s pricing and fee trends, credit quality and outlook, liquidity, new business results, expansion plans, anticipated expenses and planned schedules. The CompanyFirst Mid intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company,First Mid and Blackhawk, are identified by use of the words “believe,” ”expect,“expect,” ”intend,“intend,” ”anticipate,“anticipate,” ”estimate,“estimate,” ”project,“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”among other things, the possibility that any of the anticipated benefits of the proposed transactions between First Mid and Blackhawk will not be realized or will not be realized within the expected time period; the risk that integration of the operations of Blackhawk with First Mid will be materially delayed or will be more costly or difficult than expected; the inability to complete the proposed transactions due to the failure to satisfy conditions to completion of the proposed transactions, including failure to obtain the required regulatory, shareholder and other sectionsapprovals; the failure of the Company’s Annual Reportproposed transactions to close for any other reason; the effect of the announcement of the proposed transactions on Form 10-Kcustomer relationships and operating results; the Company’s other filings withpossibility that the SEC, andproposed transactions may be more expensive to complete than anticipated, including as a result of unexpected factors or events; changes in interest rates,rates; general economic conditions and those in the Company’s market area, legislative/areas of First Mid and Blackhawk; legislative and/or regulatory changes,changes; monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board,Board; the quality or composition of theFirst Mid’s and Blackhawk’s loan or investment portfolios and the valuation of thethose investment portfolio, the Company’s success in raising capital and effecting and integrating acquisitions,portfolios; demand for loan products,products; deposit flows,flows; competition, demand for financial services in the Company’s market areaareas of First Mid and Blackhawk; accounting principles, policies and guidelines. Furthermore, forward-lookingguidelines; and the impact of the global COVID-19 pandemic on First Mid’s or Blackhawk’s businesses, the ability to complete the proposed transactions or any of the other foregoing risks. Additional information concerning First Mid, including additional factors and risks that could materially affect First Mid’s financial results, are included in First Mid’s filings with the SEC, including its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. 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 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 $22,059,000$19.2 million and $15,043,000$16.6 million for the ninethree months ended September 30, 2017March 31, 2023 and 2016,2022, respectively. Diluted net income per common share available to common stockholders was $1.76$0.93 and $1.50$0.86 for the ninethree months ended September 30, 2017March 31, 2023 and 2016.


2022, respectively.

The following table shows the Company’s annualized performance ratios for the ninethree months ended September 30, 2017March 31, 2023 and 2016,2022, compared to the performance ratios for the year ended December 31, 2016:

 Nine months ended Year ended
 September 30,
2017		 September 30,
2016		 December 31,
2016
Return on average assets1.04% 0.92% 0.94%
Return on average common equity9.96% 9.34% 9.30%
Average equity to average assets10.42% 10.10% 10.12%

2022:

 

Three months ended

 

 

Year ended

 

 

March 31, 2023

 

 

March 31, 2022

 

 

December 31, 2022

 

Return on average assets

 

1.15

%

 

 

1.05

%

 

 

1.11

%

Return on average common equity

 

12.11

%

 

 

9.95

%

 

 

11.38

%

Average equity to average assets

 

9.47

%

 

 

10.56

%

 

 

9.77

%

Total assets were $2.79$6.7 billion at September 30, 2017,March 31, 2023, compared to $2.88$6.7 billion as of December 31, 2016.2022. From December 31, 20162022 to September 30, 2017,March 31, 2023, cash and interest bearing deposits decreased $106.2cash equivalents increased $16.7 million, net loan balances increased $38.8decreased $65.4 million and investment securities decreased $3.6$6.2 million. Net loan balances were $1.85$4.70 billion at September 30, 2017March 31, 2023 compared to $1.81$4.77 billion at December 31, 2016.


41



2022.

38



Net interest margin, on a tax equivalent basis, defined as net interest income divided by average interest-earning assets, was 3.55%2.94% for the ninethree months ended September 30, 2017, upMarch 31, 2023, down from 3.27%3.07% for the same period in 2016.2022. This increasedecrease was primarily due to increased rates on interest-bearing deposits and borrowings partially offset by an increase in earning assets and net accretion income from the acquisition of First Clover Leaf.asset yields. Net interest income before the provision for loan losses was $69.6$43.2 million compared to net interest income of $49.7$43.5 million for the same period in 2016.2022. The increasedecrease in net interest income was primarily due to organic growth in average earning assets including loans and investments primarily due to the acquisition of First Clover Leaf. Income fromJefferson Bank Owned Life Insurance increased $971,000 compared toduring the same period in 2016 due to a death benefitfirst quarter of $511,000 and nine months of cash surrender value increases for 2017 versus six months for 2016.


2022, offset by higher funding costs.

Total non-interest income of $23.1$22.5 million increased $3.1$1.4 million or 15.6%6.6% from $20.0 million for the same period last year. Insurance commissions were $342,000 higher than last year primarily due to growth in senior care policies underwritten through the Illiana Insurance Agency branch of First Mid Insurance. Electronic Services revenues were $410,000 greater than last year and deposit service charges increased by $183,000 primarily due to the addition of First Clover Leaf.


Total non-interest expense of $55.1 million increased $10.4 million or 23.4% from $44.6$21.1 million for the same period last year. The increase isin non-interest income resulted primarily attributable to the First Clover Leaf acquisition. Salariesfrom an increase in insurance commissions and benefitsincome from Jefferson Bank.

Total non-interest expense of $41.6 million increased to $29.7$1.2 million compared to $23.3or 2.9% from $40.4 million for the same period last year. Occupancy expenses have alsoThe increased to $9.4 million from $8.4 million for the first nine months of last yearwas primarily due to variable costs tied to the additional locationsincreased revenues, inflationary impacts, and expenses from First Clover Leaf.


the acquisition of Delta during February of 2022.

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

 Change in Net Income
2017 versus 2016
 Three months ended September 30, Nine months ended September 30,
Net interest income$5,250
 $19,918
Provision for loan losses(408) (3,124)
Other income, including securities transactions763
 3,125
Other expenses(2,592) (10,435)
Income taxes(726) (2,468)
Increase in net income$2,287
 $7,016

 

 

Change in
Net Income

 

 

 

2023 versus 2022

 

 

 

Three months ended

 

 

 

March 31, 2023

 

Net interest income

 

$

(331

)

Provision for credit losses

 

 

3,769

 

Other income, including securities transactions

 

 

1,391

 

Other expenses

 

 

(1,189

)

Income taxes

 

 

(1,076

)

Increase (decrease) in net income

 

$

2,564

 

Credit quality is an area of importance to the Company. Total nonperforming loans were $19.8$15.2 million at September 30, 2017,March 31, 2023, compared to $15.8$22.5 million at September 30, 2016March 31, 2022 and $18.2$19.2 million at December 31, 2016.2022. See the discussion under the heading “Loan Quality and Allowance for Loan Losses” for a detailed explanation of these balances. Repossessed asset balances totaled $2.3$4.1 million at September 30, 2017March 31, 2023 compared to $2.1$4.8 million at September 30, 2016March 31, 2022 and $2$4.4 million at December 31, 2016. 2022.

The Company’s provision for loancredit losses for the ninethree months ended September 30, 2017March 31, 2023 and 20162022 was $5,051,000($0.8) million and $1,927,000,$3.0 million, respectively. The provision expense during the first three months of 2022 included recording an initial provision for credit losses for Jefferson Bank of $2.0 million. Total loans past due 30 days or more were 0.77%0.21% of loans at September 30, 2017March 31, 2023 compared to 0.38%0.53% at September 30, 2016,March 31, 2022, and 0.45%0.24% of loans at December 31, 2016.  At September 30, 2017, the composition of the loan portfolio remained similar to the same period last year.2022. Loans secured by both commercial and residential real estate comprised approximately 65.6%69.1% of the loan portfolio as of September 30, 2017March 31, 2023 and 66.6%68.8% as of December 31, 2016.


2022.

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 September 30, 2017March 31, 2023 and 20162022 and December 31, 20162022 was 12.41%12.88%, 12.03%12.42% and 11.99%12.40%, respectively. The Company’s total capital to risk weighted assets ratio calculated under the regulatory risk-based capital requirements at September 30, 2017March 31, 2023 and 20162022, and December 31, 20162022 was 13.26%15.74%, 12.79%15.41% and 12.79%15.20%, respectively. The increase in these ratiosTier 1 capital and total to risk weighted assets ratio from December 31, 20162022 was primarily due to net income added to retained earnings.


39

On March 27, 2020, the federal banking regulatory agencies, issued an interim final rule which provided an option to delay the estimated impact on regulatory capital of ASU 2016-13, which was effective January 1, 2020. The initial impact of adoption of ASU 2016-13, as well as 25% of the quarterly increases in the allowance for credit losses subsequent to adoption of ASU 2016-13 ("CECL adjustments"), was be delayed for two years. The cumulative amount of these adjustments is being phased out of the regulatory capital calculation over a three-year period, with 75% of the adjustments included in 2022, 50% of the adjustments included in 2023 and 25% of the adjustments included in 2024. After five years, the temporary delay of ASU 2016-13 adoption will be fully reversed. The Company has elected this option.

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



42





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 September 30, 2017March 31, 2023 and 20162022, were $440 million$1.2 billion and $455 million,$1.2 billion, respectively.



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

The Company expensed $582,000$0.5 million and $758,000$0.4 million for thisthe assessment during the first ninethree months of 20172023 and 2016,2022, respectively.


In addition to its insurance assessment, each insured bank is 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 $97,000 and $83,000 during the first nine months of 2017 and 2016 for this assessment, respectively.


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

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

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

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.



43





Critical Accounting Policies and Use of Significant Estimates


The Company has established various accounting policies that govern the application of U.S. generally accepted accounting principles in the preparation of the Company’s consolidated financial statements. The significant accounting policies of the Company are described in the footnotes to the consolidated financial statements included in the Company’s 20162023 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 (loss).

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

Allowance for Credit Losses - Loans. The Company believes the allowance for credit losses for loans is the critical accounting policy that requires the most significant judgments and assumptions used in the preparation of its consolidated financial statements.

40

The allowance for credit losses for loans represents the best estimate of losses inherent in the existing loan portfolio. An estimate of potential losses inherent in the loan portfolio are determined and an allowance for those losses is established by considering factors including historical loss rates, expected cash flows and estimated collateral values. In assessing these factors, the Company uses relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts.

To determine the allowance, the loan portfolio is segmented based on similar risk characteristics. The allowance for credit losses is estimated using a discounted cash flow (DCF) methodology. The DCF projects future cash flows over the life of the loan portfolio. Probability of default (PD) and loss given default (LGD) are key components in calculating expected losses in this model. The PD is forecasted using a regression model that determines the likelihood of default with a forward-looking forecast of unemployment rates. The LGD is the percentage of defaulted loans that is ultimately charged off. The allowance is calculated as the net present value of the expected cash flows less the amortized cost basis of the loans. Prior to 2022, the allowance for credit losses was measured on a collective (pool) basis for non-individually evaluated loans with similar risk characteristics. Historical credit loss experience provided the basis for the estimate of expected credit losses. Adjustments to expected losses are made using qualitative factors for relevant to each loan segment including merger & acquisition activity, economic conditions, changes in policies, procedures & underwriting, and concentrations. In addition, a forecast, using reasonable and supportable future conditions, is prepared that is used to estimate expected changes to existing and historical conditions in the current period.

The Company estimates the appropriate level of allowance for credit losses for individually evaluated loans by evaluating them separately. A specific allowance is assigned to an impaired loan when expected cash flows or collateral are less than the carrying amount of the loan.

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

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

Operating costs associated with the assets after acquisition are also recorded as noninterest expense. Gains and losses on the disposition of other real estate owned and foreclosed assets are netted and posted to other noninterest expense.

Mortgage Servicing Rights. The Company has elected to record mortgage servicing rights under the amortization method. Using this method, servicing rights are amortized in proportion to and over the period of estimated net servicing income.


44






The amortized assets are assessed for impairment based on fair value at each reporting date. Impairment is determined by stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type and investor type.

Impairment is recognized through a valuation reserve, to the extent that fair value is less than the carrying amount of the servicing assets. Fair value in excess of the carrying amount of servicing assets is not recognized.

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


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


41

Impairment of Goodwill and Intangible Assets.Core deposit and customer relationships, which are intangible assets with a finite life, are recorded on the Company’s consolidated balance sheets. These intangible assets were capitalized as a result of past acquisitions and are being amortized over their estimated useful lives of up to 15 years. Core deposit intangible assets, with finite lives will be tested for impairment when changes in events or circumstances indicate that its carrying amount may not be recoverable. Core deposit intangible assets were tested for impairment as of September 30, 20172021 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.


45





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




Results of Consolidated 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.





46



Net interest income is the excess of interest received from earning assets over interest paid on interest-bearing liabilities. For analytical purposes, net interest income is presented on a full tax equivalent ("TE") basis in the table that follows. The federal statutory rate in effect of 21% for 2023 and 2022 was used. The TE analysis portrays the income tax benefits associated with the tax-exempt assets. The year-to-date net yield on interest-earning assets excluding the TE adjustments of $755,000 and $770,000 for 2023 and 2022, respectively were 2.89% and 3.03% at March 31, 2023 and 2022, respectively.

42



The Company’s average balances, fully tax equivalent interest income and interest expense, and rates earned or paid for major balance sheet categories are set forth for the three and nine months ended September 30, 2017March 31, 2023 and 20162022 in the following table (dollars in thousands):

 

 

Three months ended March 31, 2023

 

 

Three months ended March 31, 2022

 

 

 

Average

 

 

 

 

 

Average

 

 

Average

 

 

 

 

 

Average

 

 

 

Balance

 

 

Interest

 

 

Rate

 

 

Balance

 

 

Interest

 

 

Rate

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits with other financial institutions

 

$

15,688

 

 

$

209

 

 

 

5.40

%

 

$

135,176

 

 

$

55

 

 

 

0.16

%

Federal funds sold

 

 

7,753

 

 

 

85

 

 

 

4.44

%

 

 

3,714

 

 

 

1

 

 

 

0.13

%

Certificates of deposit

 

 

1,789

 

 

 

14

 

 

 

3.09

%

 

 

2,238

 

 

 

11

 

 

 

2.04

%

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

957,951

 

 

 

5,163

 

 

 

2.16

%

 

 

1,111,109

 

 

 

4,905

 

 

 

1.77

%

Tax-exempt (1)

 

 

280,828

 

 

 

2,486

 

 

 

3.54

%

 

 

382,909

 

 

 

2,867

 

 

 

2.99

%

Loans net of unearned income (TE) (2)

 

 

4,788,255

 

 

 

56,469

 

 

 

4.78

%

 

 

4,182,606

 

 

 

40,076

 

 

 

3.88

%

Total earning assets

 

 

6,052,264

 

 

 

64,426

 

 

 

4.32

%

 

 

5,817,752

 

 

 

47,915

 

 

 

3.33

%

Cash and due from banks

 

 

135,145

 

 

 

 

 

 

 

 

 

114,257

 

 

 

 

 

 

 

Premises and equipment

 

 

90,345

 

 

 

 

 

 

 

 

 

83,883

 

 

 

 

 

 

 

Other assets

 

 

475,022

 

 

 

 

 

 

 

 

 

367,966

 

 

 

 

 

 

 

Allowance for loan losses

 

 

(59,558

)

 

 

 

 

 

 

 

 

(58,462

)

 

 

 

 

 

 

Total assets

 

$

6,693,218

 

 

 

 

 

 

 

 

$

6,325,396

 

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

$

2,504,073

 

 

$

9,655

 

 

 

1.56

%

 

$

2,610,573

 

 

$

1,321

 

 

 

0.21

%

Savings deposits

 

 

640,347

 

 

 

191

 

 

 

0.12

%

 

 

658,038

 

 

 

119

 

 

 

0.07

%

Time deposits

 

 

699,328

 

 

 

2,921

 

 

 

1.69

%

 

 

615,142

 

 

 

708

 

 

 

0.47

%

Total interest-bearing deposits

 

 

3,843,748

 

 

 

12,767

 

 

 

1.35

%

 

 

3,883,753

 

 

 

2,148

 

 

 

0.22

%

Securities sold under agreements to repurchase

 

 

231,012

 

 

 

1,463

 

 

 

2.57

%

 

 

173,491

 

 

 

67

 

 

 

0.16

%

FHLB advances

 

 

540,156

 

 

 

4,874

 

 

 

3.66

%

 

 

115,852

 

 

 

276

 

 

 

0.97

%

Federal funds purchased

 

 

778

 

 

 

9

 

 

 

4.69

%

 

 

44

 

 

 

—

 

 

 

—

%

Subordinated debt

 

 

94,567

 

 

 

987

 

 

 

4.23

%

 

 

94,413

 

 

 

986

 

 

 

4.24

%

Junior subordinated debentures

 

 

19,385

 

 

 

379

 

 

 

7.93

%

 

 

19,210

 

 

 

146

 

 

 

3.08

%

Other debt

 

 

—

 

 

 

—

 

 

 

—

%

 

 

—

 

 

 

—

 

 

 

—

%

Total borrowings

 

 

885,898

 

 

 

7,712

 

 

 

3.53

%

 

 

403,010

 

 

 

1,475

 

 

 

1.48

%

Total interest-bearing liabilities

 

 

4,729,646

 

 

 

20,479

 

 

 

1.76

%

 

 

4,286,763

 

 

 

3,623

 

 

 

0.34

%

Non interest-bearing demand deposits

 

 

1,273,527

 

 

 

 

 

 

1.38

%

 

 

1,329,554

 

 

 

 

 

 

0.26

%

Other liabilities

 

 

56,456

 

 

 

 

 

 

 

 

 

41,345

 

 

 

 

 

 

 

Stockholders' equity

 

 

633,589

 

 

 

 

 

 

 

 

 

667,734

 

 

 

 

 

 

 

Total liabilities and equity

 

$

6,693,218

 

 

 

 

 

 

 

 

$

6,325,396

 

 

 

 

 

 

 

Net interest income

 

 

 

 

$

43,947

 

 

 

 

 

 

 

 

$

44,292

 

 

 

 

Net interest spread

 

 

 

 

 

 

 

 

2.56

%

 

 

 

 

 

 

 

 

2.99

%

Impact of non interest-bearing funds

 

 

 

 

 

 

 

 

0.38

%

 

 

 

 

 

 

 

 

0.08

%

TE net yield on interest-earning assets

 

 

 

 

 

 

 

 

2.94

%

 

 

 

 

 

 

 

 

3.07

%

1.
            
 Three months ended September 30, 2017 Three months ended September 30, 2016
 
Average
Balance
 Interest 
Average
Rate
 
Average
Balance
 Interest 
Average
Rate
ASSETS           
Interest-bearing deposits with other financial institutions$11,265
 $40
 1.44% $9,662
 $15
 0.62%
Federal funds sold490
 1
 0.83% 6,718
 7
 0.41%
Certificates of deposit investments1,685
 9
 2.17% 29,490
 78
 1.05%
Investment securities 
  
  
  
  
  
Taxable579,025
 2,984
 2.06% 522,841
 2,304
 1.76%
Tax-exempt (1)172,617
 1,195
 2.77% 119,986
 925
 3.08%
Loans (2)1,840,570
 20,385
 4.49% 1,445,774
 15,294
 4.21%
Total earning assets2,605,652
 24,614
 3.83% 2,134,471
 18,623
 3.47%
Cash and due from banks52,458
  
  
 47,417
  
  
Premises and equipment38,877
  
  
 32,249
  
  
Other assets140,768
  
  
 100,546
  
  
Allowance for loan losses(18,595)  
  
 (15,520)  
  
Total assets$2,819,160
  
  
 $2,299,163
  
  
LIABILITIES AND STOCKHOLDERS’ EQUITY           
Interest-bearing deposits 
  
  
  
  
  
Demand deposits$1,131,699
 $500
 0.18% $851,425
 $217
 0.10%
Savings deposits366,541
 119
 0.13% 338,583
 112
 0.13%
Time deposits325,070
 409
 0.51% 294,598
 294
 0.40%
Securities sold under agreements to repurchase135,327
 51
 0.15% 130,999
 23
 0.07%
FHLB advances73,051
 283
 1.57% 51,453
 150
 1.16%
Fed Funds Purchased9,467
 37
 1.59% 5,914
 12
 0.81%
Junior subordinated debt23,966
 236
 3.99% 21,437
 162
 3.01%
Other debt12,177
 106
 3.53% 4,728
 30
 2.50%
Total interest-bearing liabilities2,077,298
 1,741
 0.34% 1,699,137
 1,000
 0.23%
Non interest-bearing demand deposits425,077
  
  
 357,160
  
  
Other liabilities11,472
  
  
 7,502
  
  
Stockholders' equity305,313
  
  
 235,364
  
  
Total liabilities & equity$2,819,160
  
  
 $2,299,163
  
  
Net interest income 
 $22,873
  
  
 $17,623
  
Net interest spread 
  
 3.49%  
  
 3.24%
Impact of non-interest bearing funds 
  
 0.06%  
  
 0.05%
Net yield on interest- earning assets 
  
 3.55%  
  
 3.29%
            
(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.

47





 Nine months ended September 30, 2017 Nine months ended September 30, 2016
 
Average
Balance
 Interest 
Average
Rate
 
Average
Balance
 Interest 
Average
Rate
Assets           
Interest-bearing deposits with other financial institutions$30,200
 $217
 0.96% $30,618
 $125
 0.54%
Federal funds sold11,901
 62
 0.69% 2,582
 8
 0.42%
Certificates of deposit investments3,867
 41
 1.42% 31,166
 234
 1.00%
Investment securities: 
  
  
  
  
  
Taxable579,444
 8,999
 2.07% 513,562
 6,981
 1.81%
Tax-exempt (1)172,447
 3,586
 2.77% 111,322
 2,641
 3.16%
Loans (2)1,820,264
 61,337
 4.51% 1,335,898
 42,496
 4.25%
Total earning assets2,618,123
 74,242
 3.79% 2,025,148
 52,485
 3.45%
Cash and due from banks54,011
  
  
 46,092
  
  
Premises and equipment39,448
  
  
 31,008
  
  
Other assets141,180
  
  
 85,451
  
  
Allowance for loan losses(17,993)  
  
 (15,078)  
  
Total assets$2,834,769
  
  
 $2,172,621
  
  
Liabilities and Stockholders' Equity        
Interest-bearing deposits 
  
  
  
  
  
Demand deposits$1,129,427
 $1,289
 0.15% $818,397
 $613
 0.10%
Savings deposits368,291
 353
 0.13% 335,518
 328
 0.13%
Time deposits353,191
 1,198
 0.45% 257,733
 836
 0.43%
Securities sold under agreements to repurchase149,970
 137
 0.12% 127,534
 62
 0.07%
FHLB advances53,076
 602
 1.52% 32,459
 465
 1.91%
Fed Funds Purchased4,334
 49
 1.50% 2,401
 14
 0.77%
Junior subordinated debt23,945
 680
 3.80% 20,894
 456
 2.91%
Other debt13,987
 336
 3.22% 1,624
 31
 2.54%
Total interest-bearing liabilities2,096,221
 4,644
 0.30% 1,596,560
 2,805
 0.23%
Non interest-bearing demand deposits434,201
  
  
 348,476
  
  
Other liabilities8,912
  
  
 8,043
  
  
Stockholders' equity295,435
  
  
 219,542
  
  
Total liabilities & equity$2,834,769
  
  
 $2,172,621
  
  
Net interest income 
 $69,598
  
  
 $49,680
  
Net interest spread 
  
 3.49%  
  
 3.22%
Impact of non-interest bearing funds 
  
 0.06%  
  
 0.05%
Net yield on interest- earning assets 
  
 3.55%  
  
 3.27%

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

48



43



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 nine-monthsmonths ended September 30, 2017,March 31, 2023, compared to the same periodsperiod in 20162022 (in thousands):

 

Three months ended March 31, 2023
Compared to 2022 Increase / (Decrease)

 

 

Total

 

 

 

 

 

 

 

 

Change

 

 

Volume (1)

 

 

Rate (1)

 

Earning assets:

 

 

 

 

 

 

 

 

Interest-bearing deposits

$

154

 

 

$

(368

)

 

$

522

 

Federal funds sold

 

84

 

 

 

3

 

 

 

81

 

Certificates of deposit investments

 

3

 

 

 

(12

)

 

 

15

 

Investment securities:

 

 

 

 

 

 

 

 

Taxable

 

258

 

 

 

(3,236

)

 

 

3,494

 

Tax-exempt (2)

 

(381

)

 

 

(847

)

 

 

466

 

Loans (2) (3)

 

16,393

 

 

 

6,300

 

 

 

10,093

 

Total interest income

$

16,511

 

 

$

1,840

 

 

$

14,671

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

 

 

 

 

 

 

 

Demand deposits

$

8,334

 

 

$

(393

)

 

$

8,727

 

Savings deposits

 

72

 

 

 

(21

)

 

 

93

 

Time deposits

 

2,213

 

 

 

111

 

 

 

2,102

 

Securities sold under agreements to repurchase

 

1,396

 

 

 

30

 

 

 

1,366

 

FHLB advances

 

4,598

 

 

 

2,617

 

 

 

1,981

 

Federal funds purchased

 

9

 

 

 

—

 

 

 

9

 

Subordinated debt

 

1

 

 

 

8

 

 

 

(7

)

Junior subordinated debentures

 

233

 

 

 

1

 

 

 

232

 

Total interest expense

 

16,856

 

 

 

2,353

 

 

 

14,503

 

Net interest income

$

(345

)

 

$

(513

)

 

$

168

 

1.
 Three months ended September 30, 2017 compared to 2016 Increase / (Decrease) Nine months ended September 30,
2017 compared to 2016
Increase / (Decrease)
 
Total
Change
 Volume (1) Rate (1) 
Total
Change
 Volume (1) Rate (1)
Earning Assets:           
Interest-bearing deposits$25
 $3
 $22
 $92
 $(3) $95
Federal funds sold(6) (30) 24
 54
 46
 8
Certificates of deposit investments(69) (342) 273
 (193) (307) 114
Investment securities: 
  
  
  
  
  
Taxable680
 263
 417
 2,018
 952
 1,066
Tax-exempt (2)270
 372
 (102) 945
 1,304
 (359)
Loans (3)5,091
 4,094
 997
 18,841
 16,121
 2,720
Total interest income5,991
 4,360
 1,631
 21,757
 18,113
 3,644
Interest-Bearing Liabilities: 
  
  
  
  
  
Interest-bearing deposits 
  
  
  
  
  
Demand deposits283
 82
 201
 676
 292
 384
Savings deposits7
 7
 —
 25
 25
 —
Time deposits115
 31
 84
 362
 321
 41
Securities sold under agreements to repurchase28
 1
 27
 75
 15
 60
FHLB advances133
 72
 61
 137
 296
 (159)
Federal Funds Purchased25
 10
 15
 35
 16
 19
Junior subordinated debt74
 20
 54
 224
 72
 152
Other debt76
 61
 15
 305
 295
 10
Total interest expense741
 284
 457
 1,839
 1,332
 507
Net interest income$5,250
 $4,076
 $1,174
 $19,918
 $16,781
 $3,137

(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) 2.
The tax-exempt income is not recordedshown on a tax-equivalent basis.
(3) 3.
Nonaccrual loans have been included in the average balances.

Net

Tax equivalent net interest income increased $19.9decreased $0.3 million, or 40.1%0.8%, to $69.6$43.9 million for the ninethree months endedSeptember 30, 2017, March 31, 2023, from $49.7$44.3 million for the same period in 2016.2022. Net interest income increased due to the growth in average earning assets including loans and investments acquired from First Clover Leaf. The net interest margin increaseddecreased primarily due to the growth in earning assets, an increase in investment yieldsdeposit and accretion income related toborrowing rates more than offsetting the acquisition of First Clover Leaf.


increase in earning asset yields.

For the ninethree months endedSeptember 30, 2017, March 31, 2023, average earning assets increased by $593.0$234.5 million, or 29.3%4.0%, and average interest-bearing liabilities increased $499.7$442.9 million or 31.3%,10.3% compared with average balances for the same period in 2016.


2022.

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


•
Average interest-bearing deposits held by the Companywith other financial institutions decreased $0.4$119.5 million or 1.4%88.4%.
•
Average federal funds sold increased $9.3$4.0 million or 360.9%108.8%.
•
Average certificates of deposits investments decreased$27.3 $0.4 million or 87.6%20.1%.
•
Average loans increased by $484.4$605.6 million or 36.3%14.5%.
•
Average securities increaseddecreased by $127.0$255.2 million or 20.3%17.1%.
•
Average interest-bearing customer deposits increaseddecreased by $439.3$40.0 million or 31.1%-1.0%.
•
Average securities sold under agreements to repurchase increased by $22.4$57.5 million or 17.6%33.2%.
•
Average borrowings and other debt increased by $38.0$425.4 million or 66.2%185.3%.
•
Net interest margin increaseddecreased to 3.55%2.94% for the first ninethree months of 20172023 from 3.27%3.07% for the first ninethree months of 2016.2022.

49



44




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 3.68% and 3.38% for the first nine months of 2017 and 2016, respectively. The TE adjustments to net interest income for the nine months ended September 30, 2017 and 2016 were $2,547,000 and $1,628,000, respectively.

Provision for Loan Losses


The provision for loancredit losses for the ninethree months ended September 30, 2017March 31, 2023 and 20162022 was $5,051,000($0.8) million and $1,927,000,$3.0 million, respectively. The increase in provision expense was primarily due toduring the first three months of 2022 included recording an increase in non-performing loans and net charge-offs.initial provision for credit losses for Jefferson Bank of $2.0 million. Net charge-offs were $3,215,000$53,000 for the ninethree months ended September 30, 2017,March 31, 2023, compared to net charge offsrecoveries of $343,000$4,000 for September 30, 2016.March 31, 2022. Nonperforming loans were $19.8$15.2 million and $15.8$22.5 million as of September 30, 2017March 31, 2023 and 2016,2022, 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 months ended March 31, 2023 and nine-months ended September 30, 2017 and 20162022 (in thousands):

 Three months ended September 30, Nine months ended September 30,
 2017 2016 $ Change 2017 2016 $ Change
Trust revenues$925
 $774
 $151
 $2,696
 $2,549
 $147
Brokerage commissions536
 526
 10
 1,550
 1,440
 110
Insurance commissions670
 738
 (68) 3,148
 2,806
 342
Service charges1,758
 1,824
 (66) 5,160
 4,977
 183
Security gains, net254
 466
 (212) 589
 1,130
 (541)
Mortgage banking revenue, net347
 382
 (35) 875
 715
 160
ATM / debit card revenue1,595
 1,457
 138
 4,828
 4,418
 410
Bank Owned Life Insurance792
 201
 591
 1,355
 384
 971
Other784
 530
 254
 2,925
 1,582
 1,343
Total other income$7,661
 $6,898
 $763
 $23,126
 $20,001
 $3,125

 

 

Three months ended March 31,

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Wealth management revenues

 

$

5,514

 

 

$

5,975

 

 

$

(461

)

 

 

-7.7

%

Insurance commissions

 

 

8,480

 

 

 

7,104

 

 

 

1,376

 

 

 

19.4

%

Service charges

 

 

2,203

 

 

 

2,056

 

 

 

147

 

 

 

7.1

%

Security gains, net

 

 

(46

)

 

 

—

 

 

 

(46

)

 

 

0.0

%

Mortgage banking revenue, net

 

 

150

 

 

 

444

 

 

 

(294

)

 

 

-66.2

%

ATM / debit card revenue

 

 

3,083

 

 

 

2,898

 

 

 

185

 

 

 

6.4

%

Bank owned life insurance

 

 

1,641

 

 

 

844

 

 

 

797

 

 

 

94.4

%

Other

 

 

1,454

 

 

 

1,767

 

 

 

(313

)

 

 

-17.7

%

Total other income

 

$

22,479

 

 

$

21,088

 

 

$

1,391

 

 

 

6.6

%

Following are explanations of the changes in these other income categories for the three months ended September 30, 2017March 31, 2023 compared to the same period in 2016:

2022:


•
TrustWealth management revenues increased $151,000 or 19.5% to $925,000 from $774,000decreased due to an increase in revenue from defined contribution and other retirement accounts. Trust assets, atlower market value, were $895.6 million at September 30, 2017 compared to $829.6 million at September 30, 2016.prices reducing fee based income.

•
Revenues from brokerageInsurance commissions increased $10,000 or 1.9% to $536,000 from $526,000 primarily due to an increase in the number of brokerage accounts from new business development efforts.

Insurance commissions decreased $68,000 or 9.2% to $670,000 from $738,000 primarily duecommission income and contingency income during 2023 compared to the timing of policy commissions receipts.same period last year.

•
Fees from service charges decreased $66,000 or 3.6%increased during the first three months of 2023 primarily due to $1,758,000an increase in overdraft fees and transaction account service charges during the period and the acquisition of Jefferson Bank.
•
Net loss from $1,824,000 primarilythe sale of securities during 2023 and 2022 were $46,000 and $0, respectively.
•
The decrease in mortgage banking income was due to a decrease in commercial transaction account fees.

The sale of securities duringmortgage refinancing activity and fees from loans sold in the three months ended September 30, 2017 resulted in net securities gains of $254,000 compared to $466,000 during the three months ended September 30, 2016.



50




secondary market.

Mortgage banking income decreased $35,000 or 9.2% to $347,000 from $382,000. Loans sold balances were as follows:

•
$12.711.5 million (representing 12475 loans) for the three months ended September 30, 2017March 31, 2023.
•
$25.919.6 million (representing 215139 loans) for the three months ended of September 30, 2016March 31, 2022.

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


•
Revenue from ATMs and debit cards increased $138,000 or 9.5% to $1,595,000 from $1,457,000 due to an increase in electronic transactions primarily from First Clover Leaf acquired inactivity during the third quarterperiod and the acquisition of 2016.Jefferson Bank.

•
Bank owned life insurance income increased $591,000 or 294.0%. The increase is primarily due to a death benefit of $511,000 received on a single policy. The Company invested $25 million in bank owned life insuranceapproximately $797,000 during the first quarterthree months 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 $254,000 or 47.9% to $784,000 from $530,000 primarily due to income from tax refunds resulting from overpayment of taxes in 2016 by First Clover Leaf.

Following are explanations of the changes in these other income categories for the nine months ended September 30, 20172023 compared to the same period in 2016:

Trust revenues increased $147,000 or 5.8% to $2,696,000 from $2,549,000 due to an increase in revenue from defined contribution and other retirement accounts. Trust assets, at market value, were $895.6 million at September 30, 2017 compared to $829.6 million at September 30, 2016.

Revenues from brokerage increased $110,000 or 7.6% to $1,550,000 from $1,440,000 primarily due to an increase in the number of brokerage accounts from new business development efforts.

Insurance commissions increased $342,000 or 12.2% to $3,148,000 from $2,806,000 primarily due to growth in senior care policies underwritten through the Illiana Insurance Agency branch of First Mid Insurance.

Fees from service charges increased $183,000 or 3.7% to $5,160,000 from $4,977,000 primarily due to the acquisition of First Clover Leaf.

The sale of securities during the nine months ended September 30, 2017 resulted in net securities gains of $589,000 compared to $1,130,000 during the nine months ended September 30, 2016.

Mortgage banking income increased $160,000 or 22.4% to $875,000 from $715,000. Loans sold balances were as follows:

$44.2 million (representing 365 loans) for the nine months ended September 30, 2017
$54.6 million (representing 452 loans) for the nine months ended September 30, 2016

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

Revenue from ATMs and debit cards increased $410,000 or 9.3% to $4,828,000 from $4,418,000 due to an increase in electronic transactions primarily from First Clover Leaf acquired in the third quarter of 2016 and incentives received from VISA.

Bank owned life insurance income increased $971,000 or 252.9%. The increase is2022 primarily due to a death benefitclaim payout, higher rates, and $15.8 million of $511,000 and nine monthsinsurance added through the acquisition of cash surrender value increases for 2017 versus six months for 2016. 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.Jefferson Bank.

•
Other income increased $1,343,000 or 84.9% to $2,925,000 from $1,582,000decreased primarily due to income from First Clover Leaf acquired duringa gain realized on the third quartertermination of 2016 and income tax refunds resulting from overpaymentderivatives in March of taxes in 2016 by First Clover Leaf.


51



2022.

45



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 months ended March 31, 2023 and nine-months ended September 30, 2017 and 2016 (in2022 (dollars in thousands):

 Three months ended September 30, Nine months ended September 30,
 2017 2016 $ Change 2017 2016 $ Change
Salaries and employee benefits$9,648
 $7,844
 $1,804
 $29,685
 $23,293
 $6,392
Net occupancy and equipment expense3,129
 2,864
 265
 9,378
 8,389
 989
Net other real estate owned expense (income)385
 32
 353
 530
 23
 507
FDIC insurance210
 294
 (84) 679
 841
 (162)
Amortization of intangible assets545
 455
 90
 1,651
 1,312
 339
Stationery and supplies168
 221
 (53) 539
 612
 (73)
Legal and professional871
 713
 158
 2,596
 2,414
 182
Marketing and donations338
 285
 53
 909
 1,486
 (577)
Other operating expenses2,618
 2,612
 6
 9,102
 6,264
 2,838
Total other expense$17,912
 $15,320
 $2,592
 $55,069
 $44,634
 $10,435

 

 

Three months ended March 31,

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Salaries and employee benefits

 

$

26,071

 

 

$

24,302

 

 

$

1,769

 

 

 

7.3

%

Net occupancy and equipment expense

 

 

6,005

 

 

 

6,155

 

 

 

(150

)

 

 

-2.4

%

Net other real estate owned expense

 

 

133

 

 

 

(33

)

 

 

166

 

 

 

-503.0

%

FDIC insurance

 

 

463

 

 

 

426

 

 

 

37

 

 

 

8.7

%

Amortization of intangible assets

 

 

1,522

 

 

 

1,522

 

 

 

—

 

 

 

0.0

%

Stationery and supplies

 

 

292

 

 

 

311

 

 

 

(19

)

 

 

-6.1

%

Legal and professional

 

 

1,690

 

 

 

1,734

 

 

 

(44

)

 

 

-2.5

%

Marketing and donations

 

 

654

 

 

 

873

 

 

 

(219

)

 

 

-25.1

%

ATM/debit card expense

 

 

1,223

 

 

 

1,078

 

 

 

145

 

 

 

13.5

%

Other operating expenses

 

 

3,524

 

 

 

4,020

 

 

 

(496

)

 

 

-12.3

%

Total other expense

 

$

41,577

 

 

$

40,388

 

 

$

1,189

 

 

 

2.9

%

Following are explanations for the changes in these other expense categories for the three months ended September 30, 2017March 31, 2023 compared to the same period in 2016:

2022:


•
SalariesThe increase in salaries and employee benefits, the largest component of other expense, increased $1,804,000 or 23.0% to $9,648,000 from $7,844,000.  The increase is primarily due to an increase in incentive compensation and commissions, share-based compensation expense, increases for merit increasesraises and applicable payroll taxes, and the addition of Jefferson Bank, offset by declines in 2017 for continuing employees.bonus accrual expense and group insurance expense, during the first three months of 2023. There were 584988 and 5961,050 full-time equivalent employees at September 30, 2017March 31, 2023 and 2016,2022, respectively.

Occupancy•
The decrease in occupancy and equipment expense increased $265,000 or 9.3%was due to $3,129,000 from $2,864,000. decreases in building maintenance and uncapitalized equipment.
•
The increase was primarily due to increases in rent and depreciation expenses related to the acquisition of six First Clover Leaf locations during the third quarter of 2016.

Netnet other real estate owned expense increased $353,000 or 1,103.1% to $385,000 from $32,000. The increase in 2017 was primarily due to properties sold at a write down of one property to the now appraised value and real estate taxes and maintenance expenses on properties owned in 2017.net gain during 2022.

•
Expense for amortization of intangible assets increased $90,000 or 19.8% to $545,000 from $455,000was flat for the ninethree months ended September 30, 2017 and 2016, respectively. March 31, 2023 compared to 2022. Core deposit intangibles increased, while mortgage servicing rights decreased.
•
The increasedecrease in 2017other operating expenses was primarily due to less acquisition costs in 2023 due to the core deposit intangible amortization from First Clover Leaf.

Other operating expenses increased $6,000 or 0.2% to $2,618,000acquisition of Delta in 2017 from $2,612,000 in 2016 primarily due to the additional expenses from the First Clover Leaf locations and costs associated with the merger of First Clover Leaf Bank into First Mid Bank during the first quarter of 2017.

On a net basis, all other categories of operating expenses increased $74,000 or 4.9% to $1,587,000 in 2017 from $1,513,000 in 2016.  The increase from 2016 to 2017 was primarily due to an increase in legal, marketing and donation expenses, primarily due to First Clover Leaf and a decline in FDIC Insurance rates.

Following are explanations for the changes in these other expense categories for the nine months ended September 30, 2017 compared to the same period in 2016:

Salaries and employee benefits, the largest component of other expense, increased $6,392,000 or 27.4% to $29,685,000 from $23,293,000.  The increase is primarily due to the addition of 88 employees in the acquisition of the First Clover Leaf and merit increases in 2017 for continuing employees. There were 584 and 596 full-time equivalent employees at September 30, 2017 and 2016, respectively.


52




2022.

•
Occupancy and equipment expense increased $989,000 or 11.8% to $9,378,000 from $8,389,000. The increase was primarily due to increases in rent and depreciation expenses related to the acquisition of six First Clover Leaf locations during the third quarter of 2016.

Net other real estate owned expense increased $507,000 or 2,204.3% to $530,000 from $23,000. The increase in 2017 was primarily due to a write down of one property to the now appraised value, real estate taxes and maintenance expenses on properties owned and losses on properties sold during 2017.

Expense for amortization of intangible assets increased $339,000 or 25.8% to $1,651,000 from $1,312,000 for the nine months endedSeptember 30, 2017 and 2016, respectively. The increase in 2017 was due to the core deposit intangible amortization from First Clover Leaf, net of intangibles that were fully amortized during 2016.

Other operating expenses increased $2,838,000 or 45.3% to $9,102,000 in 2017 from $6,264,000 in 2016 primarily due to the additional expenses from the First Clover Leaf locations and costs associated with the merger of First Clover Leaf Bank into First Mid Bank during the first quarter of 2017.

On a net basis, all other categories of operating expenses decreased $630,000 or 11.8%during the period compared to $4,723,000 in 2017 from $5,353,000 in 2016.  The decrease from 2016 to 2017 waslast year primarily due to the donation of a building located in Monticello, Illinois with a book value of $653,000 and a decline in FDIC Insurance rates, during 2016, net of increases in other expenses from the addition of First Clover Leaf.Company's ongoing efficiency improvement efforts.

Income Taxes


Total income tax expense amounted to $10.5$5.7 million (32.3%(23.0% effective tax rate) for the ninethree months ended September 30, 2017,March 31, 2023, compared to $8.1$4.6 million (34.9%(21.9% effective tax rate) for the same period in 2016.2022. The declineincrease in effective tax rate for the nine months ended September 30, 2017 comparedis related to the same period in 2016 is primarily due to an increase in tax-exempt municipal investments andincreased pre-tax net income from bank owned life insurance, net of an increase in State of Illinois tax rate from 7.75% to 9.50% beginning July 1, 2017.


while permanent items were relatively stable.

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


53



2019.

46



Analysis of Consolidated 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 September 30, 2017March 31, 2023 and December 31, 20162022 (dollars in thousands):
 September 30, 2017 December 31, 2016
 Amortized
Cost		 Weighted
Average
Yield		 Amortized
Cost		 Weighted
Average
Yield
U.S. Treasury securities and obligations of U.S. government corporations and agencies$196,237
 1.98% $213,050
 1.83%
Obligations of states and political subdivisions169,526
 2.86% 164,163
 2.80%
Mortgage-backed securities: GSE residential314,195
 2.59% 318,829
 2.57%
Trust preferred securities2,933
 2.15% 3,050
 1.86%
Other securities4,034
 2.50% 4,034
 2.14%
Total securities$686,925
 2.55% $703,126
 2.39%


 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

Amortized
Cost

 

 

Weighted
Average Yield

 

 

Amortized
Cost

 

 

Weighted
Average Yield

 

U.S. Treasury securities and obligations of U.S. government corporations and agencies

 

$

253,228

 

 

 

1.29

%

 

$

252,934

 

 

 

1.28

%

Obligations of states and political subdivisions

 

 

339,808

 

 

 

2.30

%

 

 

347,409

 

 

 

2.31

%

Mortgage-backed securities: GSE residential

 

 

730,036

 

 

 

1.69

%

 

 

744,636

 

 

 

1.69

%

Other securities

 

 

86,830

 

 

 

3.36

%

 

 

90,347

 

 

 

3.41

%

Total securities

 

$

1,409,902

 

 

 

1.87

%

 

$

1,435,326

 

 

 

1.87

%

At September 30, 2017,March 31, 2023, the Company’s investment portfolio decreased by $16.2$25.4 million from December 31, 20162022 primarily due to securities that were sold to provide cash flow to fund loans.and securities maturing in the period. 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 September 30, 2017March 31, 2023 for certain investment securities (in thousands):

 

 

 

 

 

 

 

 

Average Credit Rating of Fair Value at March 31, 2023 (1)

 

 

 

Amortized
Cost

 

 

Estimated
Fair Value

 

 

AAA

 

 

AA +/-

 

 

A +/-

 

 

BBB +/-

 

 

< BBB -

 

 

Not rated

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. government corporations and agencies

 

$

253,228

 

 

$

223,545

 

 

$

26,161

 

 

$

197,384

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

Obligations of state and political subdivisions

 

 

339,808

 

 

 

284,997

 

 

 

45,756

 

 

 

193,560

 

 

 

45,280

 

 

 

—

 

 

 

—

 

 

 

401

 

Mortgage-backed securities (2)

 

 

730,036

 

 

 

624,272

 

 

 

959

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

623,313

 

Other securities

 

 

83,851

 

 

 

79,884

 

 

 

—

 

 

 

15,661

 

 

 

22,936

 

 

 

6,532

 

 

 

—

 

 

 

34,755

 

Total available-for-sale

 

$

1,406,923

 

 

$

1,212,698

 

 

$

72,876

 

 

$

406,605

 

 

$

68,216

 

 

$

6,532

 

 

$

—

 

 

$

658,469

 

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other securities

 

 

2,979

 

 

 

2,979

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,979

 

Total held-to-maturity

 

$

2,979

 

 

$

2,979

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

2,979

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Agricultural Mtg Corp

 

$

85

 

 

$

362

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

362

 


1.
 Amortized Cost Estimated Fair Value Average Credit Rating of Fair Value at September 30, 2017 (1)
   AAA AA +/- A +/- BBB +/- < BBB - Not rated
Available-for-sale:               
U.S. Treasury securities and obligations of U.S. government corporations and agencies$126,931
 $126,401
 $—
 $126,401
 $—
 $—
 $—
 $—
Obligations of state and political subdivisions169,526
 172,526
 13,173
 103,705
 54,771
 —
 —
 877
Mortgage-backed securities (2)314,195
 315,357
 —
 —
 —
 —
 —
 315,357
Trust preferred securities2,933
 2,701
 —
 —
 —
 —
 2,701
 —
Other securities4,034
 4,219
 —
 —
 2,038
 2,006
 —
 175
Total available-for-sale$617,619
 $621,204
 $13,173
 $230,106
 $56,809
 $2,006
 $2,701
 $316,409
Held-to-maturity:               
U.S. Treasury securities and obligations of U.S. government corporations and agencies$69,306
 $69,137
 $—
 $69,137
 $—
 $—
 $—
 $—

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

(2) 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.

54



47



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 September 30, 2017:
Deal name PreTSL XXVIII
Class Mezzanine C-1
Book value $2,933,000
Fair value $2,701,000
Unrealized gains/(losses) $(232,000)
Other-than-temporary impairment recorded in earnings $1,111,000
Lowest credit rating assigned CCC
Number of performing banks 35
Number of issuers in default 8
Number of issuers in deferral 1
Original collateral $360,850,000
Actual defaults & deferrals as a % of original collateral 13.7%
Remaining collateral $334,542,000
Actual defaults & deferrals as a % of remaining collateral 14.8%
Expected defaults & deferrals as a % of remaining collateral 40.7%
Estimated incremental defaults required to break yield $61,062,000
Performing collateral $286,342,000
Current balance of class $34,357,000
Subordination $257,584,000
Excess subordination $21,123,000
Excess subordination as a % of remaining performing collateral 7.4%
Discount rate (1) 2.51%-3.99%
Expected defaults & deferrals as a % of remaining collateral (2) 2% / .36
Recovery assumption (3) 10%
Prepayment assumption (4) 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

55





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 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 September 30, 2017 and December 31, 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.


56





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

how much fair value has declined below amortized cost;
how long the decline in fair value has existed;
the financial condition of the issuers;
contractual or estimated cash flows of the security;
underlying supporting collateral;
past events, current conditions and forecasts;
significant rating agency changes on the issuer; and
the Company’s intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.

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

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

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


Loans


The loan portfolio (net of unearned interest) is the largest category of the Company’s earning assets. The following table summarizes the composition of the loan portfolio at amortized cost, including loans held for sale, as of September 30, 2017March 31, 2023 and December 31, 20162022 (in thousands):

 September 30, 2017 % Outstanding
Loans		 December 31, 2016 % Outstanding
Loans
Construction and land development$77,179
 4.1% $49,104
 2.7%
Agricultural real estate126,096
 6.8% 126,108
 6.9%
1-4 Family residential properties301,897
 16.2% 326,415
 17.9%
Multifamily residential properties72,323
 3.9% 83,200
 4.6%
Commercial real estate647,184
 34.6% 630,135
 34.5%
Loans secured by real estate1,224,679
 65.6% 1,214,962
 66.6%
Agricultural loans81,383
 4.4% 86,685
 4.7%
Commercial and industrial loans443,473
 23.7% 409,033
 22.4%
Consumer loans30,074
 1.6% 38,028
 2.1%
All other loans87,953
 4.7% 77,284
 4.2%
Total loans$1,867,562
 100.0% $1,825,992
 100.0%



57





Overall

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

Amortized
Cost

 

 

% Outstanding
Loans

 

 

Amortized
Cost

 

 

% Outstanding
Loans

 

Construction and land development

 

$

159,157

 

 

 

3.3

%

 

$

144,264

 

 

 

3.0

%

Agricultural real estate

 

 

401,957

 

 

 

8.4

%

 

 

410,327

 

 

 

8.5

%

1-4 family residential properties

 

 

424,545

 

 

 

8.9

%

 

 

440,180

 

 

 

9.1

%

Multifamily residential properties

 

 

301,808

 

 

 

6.3

%

 

 

294,346

 

 

 

6.1

%

Commercial real estate

 

 

2,003,647

 

 

 

42.2

%

 

 

2,030,011

 

 

 

42.1

%

Loans secured by real estate

 

 

3,291,114

 

 

 

69.1

%

 

 

3,319,128

 

 

 

68.8

%

Agricultural loans

 

 

146,847

 

 

 

3.1

%

 

 

166,838

 

 

 

3.5

%

Commercial and industrial loans

 

 

1,078,021

 

 

 

22.6

%

 

 

1,082,960

 

 

 

22.4

%

Consumer loans

 

 

88,430

 

 

 

1.9

%

 

 

97,775

 

 

 

2.0

%

All other loans

 

 

156,219

 

 

 

3.3

%

 

 

159,511

 

 

 

3.3

%

Total loans

 

$

4,760,631

 

 

 

100.0

%

 

$

4,826,212

 

 

 

100.0

%

Loan balances decreased $65.6 million, or (1.4%). The decrease was primarily due to less loan balances increased $41,570,000, or 2.28%.demand and lower line of credit draws. The balance of real estate loans held for sale, included in the balances shown above, amounted to $2,079,000$1.0 million and $1,175,000$0.3 million as of September 30, 2017March 31, 2023 and December 31, 2016,2022, 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 September 30, 2017 and December 31, 2016 (dollars in thousands):
 September 30, 2017 December 31, 2016
 Principal
balance		 % Outstanding
Loans		 Principal
balance		 % Outstanding
loans
Central region486,267
 26.0% 465,458
 25.5%
Sullivan region163,329
 8.7% 170,463
 9.3%
Decatur region355,564
 19.0% 313,459
 17.2%
Peoria region186,356
 10.0% 204,514
 11.2%
Highland region542,189
 29.1% 538,325
 29.5%
Southern region133,857
 7.2% 133,773
 7.3%
Total all regions$1,867,562
 100.0% $1,825,992
 100.0%

Loans are geographically dispersed among these regions located in central and southwestern Illinois.southern Illinois, the St. Louis Metro area, central Missouri, and Texas. While these regions have experienced some economic stress during 20172023 and 2016,2022, the Company does not consider these locations high risk areas since these regions have not experienced the significant declineschanges 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 September 30, 2017March 31, 2023 and December 31, 2016,2022, the Company did have industry loan concentrations in excess ofthat exceeded 25% of total risk-based capital in the following industries (dollars in thousands):

 September 30, 2017 December 31, 2016
 
Principal
balance
 
% Outstanding
Loans
 
Principal
balance
 
% Outstanding
Loans
Other grain farming$166,432
 8.91% $171,336
 9.38%
Lessors of non-residential buildings168,254
 9.01% 134,019
 7.34%
Lessors of residential buildings & dwellings129,378
 6.93% 139,584
 7.64%
Hotels and motels120,330
 6.44% 103,843
 5.69%
Other Gambling Industries81,434
 4.36% 48,973
 2.68%
Automobile Dealers49,874
 2.67% 54,261
 2.97%

Balances of other gambling industries were not a concentration December 31, 2016, but is shown here for comparative purposes. Balances of automobile dealers were not a concentration September 30, 2017, but is shown here for comparative purposes.

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

Principal
balance

 

 

% Outstanding
 Loans

 

 

Principal
balance

 

 

% Outstanding
Loans

 

Other grain farming

 

$

422,417

 

 

 

8.87

%

 

$

445,241

 

 

 

9.23

%

Lessors of non-residential buildings

 

 

945,733

 

 

 

19.87

%

 

 

956,120

 

 

 

19.81

%

Lessors of residential buildings and dwellings

 

 

462,809

 

 

 

9.72

%

 

 

453,219

 

 

 

9.39

%

Hotels and motels

 

 

211,395

 

 

 

4.44

%

 

 

209,837

 

 

 

4.35

%

The Company had no further industry loan concentrations in excess of 25% of total risk-based capital.



58



48



The following table presents the balance of loans outstanding as of September 30, 2017,March 31, 2023, by contractual maturities (in thousands):

 

 

Maturity (1)

 

 

 

One year
or less(2)

 

 

Over 1 through
5 years

 

 

Over 5
years

 

 

Total

 

Construction and land development

 

$

36,125

 

 

$

66,540

 

 

$

56,492

 

 

$

159,157

 

Agricultural real estate

 

 

12,687

 

 

 

128,861

 

 

 

260,409

 

 

 

401,957

 

1-4 family residential properties

 

 

11,362

 

 

 

118,826

 

 

 

294,357

 

 

 

424,545

 

Multifamily residential properties

 

 

16,742

 

 

 

226,867

 

 

 

58,199

 

 

 

301,808

 

Commercial real estate

 

 

119,912

 

 

 

1,013,790

 

 

 

869,945

 

 

 

2,003,647

 

Loans secured by real estate

 

 

196,828

 

 

 

1,554,884

 

 

 

1,539,402

 

 

 

3,291,114

 

Agricultural loans

 

 

96,434

 

 

 

43,677

 

 

 

6,736

 

 

 

146,847

 

Commercial and industrial loans

 

 

353,335

 

 

 

476,963

 

 

 

247,723

 

 

 

1,078,021

 

Consumer loans

 

 

7,687

 

 

 

58,726

 

 

 

22,017

 

 

 

88,430

 

All other loans

 

 

23,087

 

 

 

24,783

 

 

 

108,349

 

 

 

156,219

 

Total loans

 

$

677,371

 

 

$

2,159,033

 

 

$

1,924,227

 

 

$

4,760,631

 

1.
 Maturity (1)
 One year
or less(2)		 Over 1 through
5 years		 Over
5 years		 Total
Construction and land development$54,002
 $15,391
 $7,786
 $77,179
Agricultural real estate14,370
 44,405
 67,321
 126,096
1-4 Family residential properties29,474
 78,604
 193,819
 301,897
Multifamily residential properties9,873
 53,001
 9,449
 72,323
Commercial real estate73,847
 293,995
 279,342
 647,184
Loans secured by real estate181,566
 485,396
 557,717
 1,224,679
Agricultural loans64,404
 15,120
 1,859
 81,383
Commercial and industrial loans176,715
 225,657
 41,101
 443,473
Consumer loans3,482
 25,125
 1,467
 30,074
All other loans19,136
 23,058
 45,759
 87,953
Total loans$445,303
 $774,356
 $647,903
 $1,867,562

(1) Based upon remaining contractual maturity.
(2) 2.
Includes demand loans, past due loans and overdrafts.

As of September 30, 2017,March 31, 2023, loans with maturities over one year consisted of approximately $1.2$2.4 billion in fixed rate loans and approximately $259 million$1.6 billion 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”“modified”. 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.



59





The following table presents information concerning the aggregate amount of nonperforming loans and repossessed assets at September 30, 2017March 31, 2023 and December 31, 2016 (in2022 (dollars in thousands):

 September 30,
2017		 December 31,
2016
Nonaccrual loans$13,784
 $12,053
Restructured loans which are performing in accordance with revised terms6,004
 6,185
Total nonperforming loans19,788
 18,238
Repossessed assets2,264
 1,985
Total nonperforming loans and repossessed assets$22,052
 $20,223
Nonperforming loans to loans, before allowance for loan losses1.06% 1.00%
Nonperforming loans and repossessed assets to loans, before allowance for loan losses1.18% 1.11%

 

 

March 31, 2023

 

 

December 31, 2022

 

Nonaccrual loans

 

$

13,798

 

 

$

15,956

 

Modified loans which are performing in accordance with revised terms

 

 

1,365

 

 

 

3,214

 

Total nonperforming loans

 

 

15,163

 

 

 

19,170

 

Repossessed assets

 

 

4,062

 

 

 

4,369

 

Total nonperforming loans and repossessed assets

 

$

19,225

 

 

$

23,539

 

Nonperforming loans to loans, before allowance for loan losses

 

 

0.32

%

 

 

0.40

%

Nonperforming loans and repossessed assets to loans, before allowance for loan losses

 

 

0.40

%

 

 

0.49

%

49

The $1,731,000 increase$2.2 million decrease in nonaccrual loans during 20172023 resulted from the net of $8,720,000$0.8 million of loans put on nonaccrual status offset by $5,491,000$2.3 million of loans becoming current or paid-off, $517,000$0.6 million of loans transferred to other real estate and $981,000$0.1 million of loans charged off.


The following table summarizes the composition of nonaccrual loans (in(dollars in thousands):
 September 30, 2017 December 31, 2016
 Balance % of Total Balance % of Total
Construction and land development$266
 1.9% $227
 1.9%
Agricultural real estate291
 2.1% 205
 1.7%
1-4 Family residential properties2,630
 19.1% 2,890
 24.0%
Multifamily Residential properties2,208
 16.0% 528
 4.4%
Commercial real estate5,341
 38.8% 4,971
 41.2%
Loans secured by real estate10,736
 77.9% 8,821
 73.2%
Agricultural loans834
 6.1% 1,388
 11.5%
Commercial and industrial loans1,920
 13.9% 1,430
 11.9%
Consumer loans294
 2.1% 414
 3.4%
Total loans$13,784
 100.0% $12,053
 100.0%

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

Balance

 

 

% of Total

 

 

Balance

 

 

% of Total

 

Construction and land development

 

$

14

 

 

 

0.1

%

 

$

14

 

 

 

0.1

%

Agricultural real estate

 

 

1,246

 

 

 

9.0

%

 

 

1,258

 

 

 

7.9

%

1-4 family residential properties

 

 

3,442

 

 

 

24.9

%

 

 

4,943

 

 

 

31.0

%

Multifamily residential properties

 

 

1,162

 

 

 

8.4

%

 

 

672

 

 

 

4.2

%

Commercial real estate

 

 

6,076

 

 

 

44.1

%

 

 

7,640

 

 

 

47.9

%

Loans secured by real estate

 

 

11,940

 

 

 

86.5

%

 

 

14,527

 

 

 

91.0

%

Agricultural loans

 

 

483

 

 

 

3.5

%

 

 

57

 

 

 

0.4

%

Commercial and industrial loans

 

 

1,136

 

 

 

8.2

%

 

 

1,098

 

 

 

6.9

%

Consumer loans

 

 

239

 

 

 

1.8

%

 

 

274

 

 

 

1.7

%

Total loans

 

$

13,798

 

 

 

100.0

%

 

$

15,956

 

 

 

100.0

%

Interest income that would have been reported if nonaccrual and restructured loans had been performing totaled $366,000$0.1 million and $99,000$0.1 million for the ninethree months endedSeptember 30, 2017 March 31, 2023 and 2016,2022, respectively.


The $279,000 increase$0.3 million decrease in repossessed assets during the first ninethree months of 20172023 resulted from the net of $7,760,000$682,000 of additional assets repossessed $327,000 of assets written down to appraised value and $7,154,000$0.8 million of repossessed assets sold.sold, $0.2 million of writedowns, and approximately $0 of change in fair value premiums and discounts. The following table summarizes the composition of repossessed assets (in(dollars in thousands):

 September 30, 2017 December 31, 2016
 Balance % of Total Balance % of Total
Construction and land development$1,799
 79.5% $1,711
 86.2%
Farm Loans—
 —% 40
 2.0%
1-4 family residential properties430
 19.0% 231
 11.6%
Total real estate2,229
 98.5% 1,982
 99.8%
Consumer loans35
 1.5% 3
 0.2%
Total repossessed collateral$2,264
 100.0% $1,985
 100.0%

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

Balance

 

 

% of Total

 

 

Balance

 

 

% of Total

 

Construction and land development

 

$

2,688

 

 

 

66.2

%

 

$

2,763

 

 

 

63.2

%

1-4 family residential properties

 

 

38

 

 

 

0.9

%

 

 

108

 

 

 

2.5

%

Commercial real estate

 

 

1,298

 

 

 

32.0

%

 

 

1,390

 

 

 

31.8

%

Total real estate

 

 

4,024

 

 

 

99.1

%

 

 

4,261

 

 

 

97.5

%

Consumer loans

 

 

38

 

 

 

0.9

%

 

 

108

 

 

 

2.5

%

Total repossessed collateral

 

$

4,062

 

 

 

100.0

%

 

$

4,369

 

 

 

100.0

%

Repossessed assets sold during the first ninethree months of 20172023 resulted in net lossesgains of $354,000, of which $21,000 of net losses was$0.1 million related to real estate asset sales and $333,000 of net losses wasof $17,000 related to other repossessed assets.asset sales. The Company also recognized no deferred losses and recorded $0.2 million of writedowns on three real estate properties owned. Repossessed assets sold during the same period in 20162022 resulted in net lossesgains of $5,000, all$21,000 related to real estate asset sales and net gains of which was$0 related to other repossessed assets.

asset sales. The company also recognized $0.1 million of deferred gains and recorded $0 of writedowns on real estate properties owned.

50

Loan Quality and Allowance for LoanCredit Losses


The allowance for loancredit 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

Management reviews economic factors includeincluding 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 September 30, 2017,March 31, 2023, the Company’s loan portfolio included $207.5$548.8 million of loans to borrowers whose businesses are directly related to agriculture. Of this amount, $166.4$422.4 million was concentrated in other grain farming. Total loans to borrowers whose businesses are directly related to agriculture decreased $5.47$28.4 million from $213.0$577.2 million at December 31, 20162022 while loans concentrated in other grain farming decreased $4.9$22.8 million from $171.3$445.2 million at December 31, 2016.  


2022. 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 $120.3$211.4 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 $168.3$945.7 million of loans to lessors of non-residential buildings, $129.4and $462.8 million of loans to lessors of residential buildings and dwellings, and $81.4 million of loans to other gambling industries.

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 majorityMost 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.


51

Analysis of the allowance for loancredit losses as of September 30, 2017March 31, 2023 and 2016,2022, and of changes in the allowance for the three months ended March 31, 2023 and nine month periods ended September 30, 2017 and 2016,2022, is as follows (dollars in thousands):


 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
Average loans outstanding, net of unearned income$1,840,570
 $1,445,774
 $1,820,264
 $1,335,898
Allowance-beginning of period18,209
 15,164
 16,753
 14,576
Charge-offs:       
Real estate-mortgage563
 —
 914
 221
Commercial, financial & agricultural686
 —
 2,579
 533
Installment18
 148
 90
 226
Other142
 123
 307
 267
Total charge-offs1,409
 271
 3,890
 1,247
Recoveries: 
  
  
  
Real estate-mortgage85
 108
 256
 523
Commercial, financial & agricultural152
 23
 203
 224
Installment11
 7
 21
 19
Other52
 49
 195
 139
Total recoveries300
 187
 675
 905
Net charge-offs (recoveries)1,109
 84
 3,215
 342
Provision for loan losses1,489
 1,081
 5,051
 1,927
Allowance-end of period$18,589
 $16,161
 $18,589
 $16,161
Ratio of annualized net charge-offs to average loans0.24% 0.02% 0.24% 0.03%
Ratio of allowance for loan losses to loans outstanding (less unearned interest at end of period)1.00% 0.89% 1.00% 0.89%
Ratio of allowance for loan losses to nonperforming loans94% 102% 94% 102%

 

 

Three months ended March 31,

 

 

 

2023

 

 

2022

 

Average loans outstanding, net of unearned income

 

$

4,728,697

 

 

$

4,182,606

 

Allowance-prior year end of period

 

 

59,093

 

 

 

54,655

 

Adjustment for adoption of ASU 2013-16

 

 

—

 

 

 

—

 

Allowance - beginning of period

 

 

59,093

 

 

 

54,655

 

Initial allowance on loans purchased with credit deterioration

 

 

—

 

 

 

863

 

Charge-offs:

 

 

 

 

 

 

Construction and land development

 

 

—

 

 

 

2

 

Agricultural real estate

 

 

—

 

 

 

—

 

1-4 family residential

 

 

40

 

 

 

72

 

Commercial real estate

 

 

—

 

 

 

339

 

Agricultural

 

 

—

 

 

 

—

 

Commercial and industrial

 

 

13

 

 

 

3

 

Consumer

 

 

427

 

 

 

358

 

Total charge-offs

 

 

480

 

 

 

774

 

Recoveries:

 

 

 

 

 

 

Construction and land development

 

 

—

 

 

 

—

 

Agricultural real estate

 

 

—

 

 

 

—

 

1-4 family residential

 

 

24

 

 

 

203

 

Commercial real estate

 

 

4

 

 

 

347

 

Agricultural

 

 

3

 

 

 

—

 

Commercial and industrial

 

 

256

 

 

 

61

 

Consumer

 

 

140

 

 

 

167

 

Total recoveries

 

 

427

 

 

 

778

 

Net charge-offs (recoveries)

 

 

53

 

 

 

(4

)

Provision for loan losses

 

 

(817

)

 

 

2,952

 

Allowance-end of period

 

$

58,223

 

 

$

58,474

 

Ratio of annualized net charge-offs to average loans

 

 

0.00

%

 

 

0.00

%

Ratio of allowance for credit losses to loans outstanding (at amortized cost)

 

 

1.22

%

 

 

1.31

%

Ratio of allowance for credit losses to nonperforming loans

 

 

384

%

 

 

260

%

The ratio of allowance for loan losses to loans outstanding was 1.00% as of September 30, 2017 compared to 0.89% as of September 30, 2016. The ratio ofincrease in the allowance for loancredit losses to nonperforming loans is 94% as of September 30, 2017 compared to 102% as of September 30, 2016.  The decrease in this ratio is primarily due to the increasea decline in nonperforming loans at March 31, 2023 compared to $19.8 million at September 30, 2017 from $15.8 million at September 30, 2016. 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.


March 31, 2022.

During the first ninethree months of 2017,2023, the Company had net charge-offscharge offs of $3,215,000$53,000 compared to net charge-offsrecoveries of $342,000$4,000 in 2016.2022. During the first ninethree months of 20172023, there were charge offs of commercial real estate loans to three borrowers of $619,000, charge offs of two agricultural loans to one borrower of $662,000, and charge offs of nine commercial operating loans to four borrowers of $1,674,000.no significant charge-offs. During the first ninethree months of 2016,2022, there was onewere significant charge offcharge-offs of a residentialtwo commercial real estate loan to a singleone borrower of $83,000, charge offs of four commercial operating loans to a single borrower of $437,000, and a significant charge off of two consumer loans to a single borrower of $108,000.


totaling $0.3 million.

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 ninethree months endedSeptember 30, 2017 March 31, 2023 and 20162022 and for the year ended December 31, 20162022 (dollars in thousands):

 Nine months ended September 30, 2017 Nine months ended September 30, 2016 Year ended December 31, 2016
 Average
Balance		 Weighted
Average
Rate		 Average
Balance		 Weighted
Average
Rate		 Average
Balance		 Weighted
Average
Rate
Demand deposits:           
Non-interest-bearing$434,201
 —% $348,476
 —% $372,339
 —%
Interest-bearing1,129,427
 0.15% 818,397
 0.10% 881,994
 0.11%
Savings368,291
 0.13% 335,518
 0.13% 340,746
 0.13%
Time deposits353,191
 0.45% 257,733
 0.43% 298,124
 0.43%
Total average deposits$2,285,110
 0.17% $1,760,124
 0.13% $1,893,203
 0.14%


 

 

Three months ended
March 31, 2023

 

 

Three months ended
March 31, 2022

 

 

Year ended
December 31, 2022

 

 

 

Average
Balance

 

 

Weighted
Average
Rate

 

 

Average
Balance

 

 

Weighted
Average
Rate

 

 

Average
Balance

 

 

Weighted
Average
Rate

 

Demand deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest-bearing

 

$

1,273,527

 

 

—%

 

 

$

1,329,554

 

 

—%

 

 

$

1,356,912

 

 

—%

 

Interest-bearing

 

 

2,504,073

 

 

 

1.56

%

 

 

2,610,573

 

 

 

0.21

%

 

 

2,598,480

 

 

 

0.53

%

Savings

 

 

640,347

 

 

 

0.12

%

 

 

658,038

 

 

 

0.07

%

 

 

666,334

 

 

 

0.09

%

Time deposits

 

 

699,328

 

 

 

1.69

%

 

 

615,142

 

 

 

0.47

%

 

 

655,240

 

 

 

0.69

%

Total average deposits

 

$

5,117,275

 

 

 

1.01

%

 

$

5,213,307

 

 

 

0.17

%

 

$

5,276,966

 

 

 

0.36

%

52

During the first three months of 2023, the average balance of deposits decreased by $159.7 million from the average balance for the year ended December 31, 2022. Average non-interest-bearing deposits decreased by $83.4 million, average interest-bearing balances decreased by $94.4 million, savings account balances decreased $26.0 million and balances of time deposits increased $44.1 million. A majority of the overall deposit decline in the period was attributable to one customer. As previously mentioned, the Company received approximately $225 million of deposits in the third quarter of last year related to a customer’s sale of certain assets. These funds were known to be temporary deposits on the Company’s balance sheet as they would be deployed for capital and operating needs of the customer. Most of this outflow occurred during the period with approximately $50 million of the balance remaining as of March 31, 2023. The Company has no other large customer deposit concentrations similar to this one. The Company has not lost a customer related to the industry’s deposit security concerns subsequent to the bank failures in March. Approximately 99% of the Company’s deposit accounts are less than $250,000. The average account balance for all deposit customers is approximately $25,000. The percentage of deposits that were uninsured at quarter end was 25.9%.

Outside of the previously mentioned customer, deposit flows throughout the quarter were relatively similar to prior periods where rate competition was a key determinant to the migration. Late in the first quarter, the Company saw an increase in the competitive landscape resulting in higher matching and promotional rates to normalize deposit flows. In addition, deposit security became a more common discussion topic, and the Company met customer needs and maintained deposit relationships by moving approximately $93 million of deposits into the Intrafi Network for the FDIC insurance coverage.

The following table sets forth the high and low month-end balances for the ninethree months endedSeptember 30, 2017 March 31, 2023 and 20162022 and for the year ended December 31, 20162022 (in thousands):

 Nine months ended
September 30, 2017		 Nine months ended
September 30, 2016		 Year ended
December 31, 2016
High month-end balances of total deposits$2,331,084
 $2,265,259
 $2,329,887
Low month-end balances of total deposits2,217,477
 1,699,770
 1,699,770

During the first nine months of 2017, the average balance of deposits increased by $391.9 million from the average balance for the year ended December 31, 2016. Average non-interest bearing deposits increased by $61.9 million, average interest bearing balances increased by $247.4 million, savings account balances increased $27.5 million and balances of time deposits increased $55.1 million. These increases were primarily the result of average deposit balances acquired in the acquisition of First Clover Leaf during the third quarter of 2016 included in balances for the full nine months of 2017.

 

Three months ended
March 31, 2023

 

 

Three months ended
March 31, 2022

 

 

Year ended
December 31, 2022

 

High month-end balances of total deposits

$

5,165,594

 

 

$

5,487,305

 

 

$

5,487,305

 

Low month-end balances of total deposits

 

5,030,778

 

 

 

4,904,973

 

 

 

4,904,973

 

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 September 30, 2017March 31, 2023 and December 31, 20162022 (in thousands):

 September 30, 2017 December 31, 2016
3 months or less$28,203
 $23,796
Over 3 through 6 months26,949
 20,352
Over 6 through 12 months37,215
 37,094
Over 12 months45,878
 70,020
Total$138,245
 $151,262


 

 

March 31, 2023

 

 

December 31, 2022

 

3 months or less

 

$

65,202

 

 

$

80,856

 

Over 3 through 6 months

 

 

96,152

 

 

 

31,771

 

Over 6 through 12 months

 

 

212,488

 

 

 

127,405

 

Over 12 months

 

 

186,600

 

 

 

183,597

 

Total

 

$

560,442

 

 

$

423,629

 

53

Repurchase Agreements and Other Borrowings


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


Information relating to securities sold under agreements to repurchase and other borrowings as of September 30, 2017March 31, 2023 and December 31, 20162022 is presented below (dollars in thousands):
 September 30, 2017 December 31, 2016
Securities sold under agreements to repurchase$116,360
 $185,763
Fed funds20,000
 —
Federal Home Loan Bank advances: 
  
FHLB-Overnight27,000
 —
Fixed term – due in one year or less—
 5,000
Fixed term – due after one year60,052
 35,094
Debt: 
  
Debt due in one year or less—
 4,000
     Debt due after one year11,250
 14,063
Junior subordinated debentures23,980
 23,917
Total$258,642
 $267,837
Average interest rate at end of period0.90% 0.52%
Maximum outstanding at any month-end:   
Securities sold under agreements to repurchase$163,626
 $185,763
Federal funds purchased20,000
 12,500
Federal Home Loan Bank advances: 
  
FHLB-Overnight30,000
 10,000
Fixed term – due in one year or less5,000
 20,000
Fixed term – due after one year60,061
 35,109
Debt: 
  
Debt due in one year or less4,000
 7,000
     Debt due after one year14,063
 15,000
Junior subordinated debentures23,980
 23,917
Averages for the period (YTD): 
  
Securities sold under agreements to repurchase$149,970
 $129,734
Federal funds purchased4,334
 1,795
Federal Home Loan Bank advances: 
  
FHLB-overnight8,055
 3,992
Fixed term – due in one year or less3,150
 10,260
Fixed term – due after one year41,871
 22,396
Debt: 
  
Loans due in one year or less879
 1,454
     Loans due after one year13,108
 4,749
Junior subordinated debentures23,945
 21,650
Total$245,312
 $196,030
Average interest rate during the period0.98% 0.81%


 

 

March 31, 2023

 

 

December 31, 2022

 

Securities sold under agreements to repurchase

 

$

228,664

 

 

$

221,414

 

Federal Home Loan Bank advances:

 

 

 

 

 

 

FHLB – overnite

 

 

110,000

 

 

 

65,000

 

Fixed term – due in one year or less

 

 

70,016

 

 

 

110,040

 

Fixed term – due after one year

 

 

415,005

 

 

 

290,031

 

Other borrowings:

 

 

 

 

 

 

Subordinated debt

 

 

94,593

 

 

 

94,553

 

Junior subordinated debentures

 

 

19,406

 

 

 

19,364

 

Total

 

$

937,684

 

 

$

800,402

 

Average interest rate at end of period

 

 

3.36

%

 

 

2.52

%

 

 

 

 

 

 

 

Maximum outstanding at any month-end:

 

 

 

 

 

 

Securities sold under agreements to repurchase

 

$

231,650

 

 

$

257,061

 

Federal Home Loan Bank advances:

 

 

 

 

 

 

FHLB – overnite

 

 

130,000

 

 

 

310,000

 

Fixed term – due in one year or less

 

 

105,024

 

 

 

160,048

 

Fixed term – due after one year

 

 

415,005

 

 

 

290,031

 

Other borrowings:

 

 

 

 

 

 

Federal funds purchased

 

 

—

 

 

 

10,000

 

Subordinated debt

 

 

94,593

 

 

 

94,553

 

Junior subordinated debentures

 

 

19,406

 

 

 

19,364

 

 

 

 

 

 

 

 

Averages for the period (YTD):

 

 

 

 

 

 

Securities sold under agreements to repurchase

 

$

231,012

 

 

$

202,242

 

Federal Home Loan Bank advances:

 

 

 

 

 

 

FHLB – overnite

 

 

118,389

 

 

 

100,084

 

Fixed term – due in one year or less

 

 

120,000

 

 

 

94,247

 

Fixed term – due after one year

 

 

301,767

 

 

 

82,070

 

Other borrowings:

 

 

 

 

 

 

Federal funds purchased

 

 

778

 

 

 

481

 

Loans due in one year or less

 

 

—

 

 

 

14

 

Subordinated debt

 

 

94,567

 

 

 

94,471

 

Junior subordinated debentures

 

 

19,385

 

 

 

19,275

 

Total

 

$

885,898

 

 

$

592,884

 

Average interest rate during the period

 

 

3.48

%

 

 

2.16

%

54

Securities sold under agreements to repurchase decreased $69.4increased $7.3 million during the first ninethree months of 20172023 primarily due to the seasonal declines in balances and cash flow needs of various customers. FHLB advances represent borrowings by First Mid Bank to economically fund loan demand.


At September 30, 2017March 31, 2023 the fixed term advances, consisted of $60$594.7 million as follows:

$5 million advance with a 3-year maturity, at 1.30%, due 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 2.5-year maturity, at 1.67%, due January 31, 2020
$5 million advance with a 3-year maturity, at 1.75%, due July 31, 2020
$5 million advance with a 6-year maturity, at 2.30%, due August 24, 2020
$5 million advance with a 3.5-year maturity, at 1.83%, due February 1, 2021
$5 million advance with a 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

Advance

 

 

Term (in years)

 

Interest Rate

 

Maturity Date

$

110,000,000

 

 

overnight

 

4.86%

 

April 1, 2023

 

5,000,000

 

 

4.0

 

2.44%

 

May 30, 2023

 

5,000,000

 

 

1.0

 

2.00%

 

May 31, 2023

 

25,000,000

 

 

9 months

 

4.34%

 

June 30, 2023

 

5,000,000

 

 

3.5

 

1.51%

 

July 31, 2023

 

5,000,000

 

 

3.5

 

0.77%

 

September 11, 2023

 

25,000,000

 

 

1.0

 

4.81%

 

November 10, 2023

 

25,000,000

 

 

1.5

 

4.69%

 

May 10, 2024

 

25,000,000

 

 

2.0

 

4.59%

 

November 8, 2024

 

10,000,000

 

 

5.0

 

1.45%

 

December 31, 2024

 

5,000,000

 

 

5.0

 

0.91%

 

March 10, 2025

 

4,746,475

 

 

10.0

 

2.64%

 

December 23, 2025

 

50,000,000

 

 

4.0

 

2.98%

 

December 8, 2027

 

50,000,000

 

 

4.0

 

3.49%

 

December 8, 2027

 

50,000,000

 

 

4.0

 

3.28%

 

December 8, 2027

 

25,000,000

 

 

5.0

 

3.56%

 

March 10, 2028

 

25,000,000

 

 

5.0

 

3.35%

 

March 13, 2028

 

25,000,000

 

 

5.0

 

3.47%

 

March 13, 2028

 

5,000,000

 

 

10.0

 

1.15%

 

October 3, 2029

 

5,000,000

 

 

10.0

 

1.12%

 

October 3, 2029

 

10,000,000

 

 

10.0

 

1.39%

 

December 31, 2029

 

50,000,000

 

 

10.0

 

2.77%

 

December 13, 2032

 

25,000,000

 

 

10.0

 

2.60%

 

March 14, 2033

 

25,000,000

 

 

10.0

 

2.40%

 

March 15, 2033

 

 

 

 

 

 

 

 

The Company is party to a revolving credit agreement with The Northern Trust Company in the amount of $10$15 million. TheThere was no balance on this line of credit was $0 as of September 30, 2017.March 31, 2023. This loan was renewed on April 14, 20177, 2023 for one year as a revolving credit agreement with a maximum available balance of $10 million.agreement. The interest rate is floating at 2.25% over the federal funds rate (3.41% at September 30, 2017). The loan is secured by all of the stock of First Mid Bank.rate. The Company and its subsidiary bankFirst Mid Bank were in compliance with the then existing covenants at September 30, 2017March 31, 2023 and 2016 and December 31, 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 September 30, 2017) and interest and principle payments are due quarterly. As of September 30, 2017, the balance due was $11.3 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. The Company and its subsidiary bank were in compliance with the then existing covenants at September 30, 20172022, and December 31, 2016.

2022.

On February 27, 2004,October 6, 2020, the Company completedissued and sold $96.0 million in aggregate principal amount of its 3.95% Fixed-to-Floating Rate Subordinated Notes due 2030 (the “Notes”). The Notes were issued pursuant to the issuanceIndenture, dated as of October 6, 2020 (the “Base Indenture”), between the Company and saleU.S. Bank National Association, as trustee (the “Trustee”), as supplemented by the First Supplemental Indenture, dated as of $10 millionOctober 6, 2020 (the “Supplemental Indenture”), between the Company and the Trustee. The Base Indenture, as amended and supplemented by the Supplemental Indenture, governs the terms of floating rate trust preferred securities through First Mid-Illinois Statutory Trust I (“Trust I”), a statutory business trustthe Notes and wholly-owned unconsolidated subsidiaryprovides that the Notes are unsecured, subordinated debt obligations of the Company as partand will mature on October 15, 2030. From and including the date of a pooled offering.  The Company established Trust I forissuance to, but excluding October 15, 2025, 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, was invested in junior subordinated debentures of the Company.  The underlying junior subordinated debentures issued by the Company to Trust I mature in 2034,Notes will bear interest at an initial rate of 3.95% per annum. From and including October 15, 2025 to, but excluding the maturity date or earlier redemption, the Notes will bear interest at a floating rate equal to three-month London Interbank Offered Rate (“LIBOR”)Term SOFR plus 280a spread of 383 basis points, (4.15%or such other rate as determined pursuant to the Supplemental Indenture, provided that in no event shall the applicable floating interest rate be less than zero per annum.

The Company may, beginning with the interest payment date of October 15, 2025, and 3.17%on any interest payment date thereafter, redeem the Notes, in whole or in part, at September 30, 2017a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus accrued and December 31, 2016), reset quarterly, and are callableunpaid interest to but excluding the date of redemption. The Company may also redeem the Notes at par,any time, including prior to October 15, 2025, at the Company’s option, in whole but not in part, if: (i) a change or prospective change in law occurs that could prevent the Company from deducting interest payable on the Notes for U.S. federal income tax purposes; (ii) a subsequent event occurs that could preclude the Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) the Company is required to register as an investment company under the Investment Company Act of 1940, as amended; in each case, at a redemption price equal to 100% of the Company, quarterly. The Company used the proceedsprincipal amount of the offering for general corporate purposes.


Notes plus any accrued and unpaid interest to but excluding the redemption date.

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-ownedwholly 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

55

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, 2.92%6.47% and 2.56%6.37% at September 30, 2017March 31, 2023 and December 31, 2016,2022, 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 (3.17%(6.72% and 2.81%6.47% at September 30, 2017March 31, 2023 and December 31, 2016,2022, respectively) and resets quarterly.


On May 1, 2018, the Company assumed the trust preferred securities of FBTC Statutory Trust I (“FBTCST I”), a statutory business trust that was a wholly owned unconsolidated subsidiary of First BancTrust Corporation. The $6,000,000 of trust preferred securities and an additional $186,000 additional investment in common equity of FBTCST I is invested in junior subordinated debentures issued to FBTCST I. The subordinated debentures mature in 2035, bear interest at three-month LIBOR plus 170 basis points (6.57% and 6.62% at March 31, 2023 and December 31, 2022, respectively) and resets quarterly.

The trust preferred securities issued by Trust II, CLST I Trust II, and CLSTFBTCST 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 certain 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 finalThe 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 (such as the Company) 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, theThe Company does not currently anticipate that the Volcker Rule will have a material effect on the operations of the Company or First Mid Bank.



On June 25, 2020, the agencies announced that certain restrictions under the Volcker Rule applicable to large banking entities will be eased commencing October 1, 2020.

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-bearinginterest- 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.


56

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.




60





The following table sets forth the Company’s interest rate repricing GAP for selected maturity periods at September 30, 2017March 31, 2023 (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$7,052
 $—
 $—
 $—
 $—
 $—
 $7,052
 $7,052
Certificates of deposit investments$—
 $735
 $950
 $—
 $—
 $—
 $1,685
 $1,708
Taxable investment securities175
 5,027
 3,002
 22,327
 38,320
 449,133
 517,984
 517,815
Nontaxable investment securities—
 664
 1,369
 2,345
 7,272
 160,876
 172,526
 172,526
Loans807,352
 268,193
 201,007
 277,925
 201,122
 111,963
 1,867,562
 1,863,011
Total$814,579

$274,619

$206,328

$302,597

$246,714

$721,972

$2,566,809

$2,562,112
Interest-bearing liabilities:   
  
  
  
  
  
  
Savings and NOW accounts$260,620
 $89,962
 $89,962
 $89,962
 $89,962
 $422,111
 $1,042,579
 $1,042,579
Money market accounts309,888
 17,939
 17,939
 17,939
 17,939
 41,842
 423,486
 423,486
Other time deposits205,597
 49,415
 34,226
 18,518
 12,447
 1,173
 321,376
 321,427
Short-term borrowings/debt163,360
 —
 —
 —
 —
 —
 163,360
 163,348
Long-term borrowings/debt45,282
 20,000
 15,000
 5,000
 5,000
 5,000
 95,282
 89,286
Total$984,747
 $177,316
 $157,127
 $131,419
 $125,348
 $470,126
 $2,046,083
 $2,040,126
Rate sensitive assets – rate sensitive liabilities$(170,168) $97,303
 $49,201
 $171,178
 $121,366
 $251,846
 $520,726
  
Cumulative GAP$(170,168) $(72,865) $(23,664) $147,514
 $268,880
 $520,726
  
  
Cumulative amounts as % of total Rate sensitive assets(6.6)% 3.8 % 1.9 % 6.7% 4.7% 9.8%    
Cumulative Ratio(6.6)% (2.8)% (0.9)% 5.7% 10.5% 20.3%    

 

 

Rate Sensitive Within

 

 

 

 

 

 

1 years

 

 

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

 

$

17,289

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

17,289

 

 

$

17,289

 

Certificates of deposit investments

 

 

245

 

 

 

1,225

 

 

 

245

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,715

 

 

 

1,715

 

Taxable investment securities

 

 

17,775

 

 

 

97,821

 

 

 

97,583

 

 

 

73,366

 

 

 

118,229

 

 

 

530,162

 

 

 

934,936

 

 

 

934,936

 

Nontaxable investment securities

 

 

(47,345

)

 

 

4,115

 

 

 

3,041

 

 

 

8,101

 

 

 

8,938

 

 

 

304,253

 

 

 

281,103

 

 

 

281,103

 

Loans

 

 

1,668,065

 

 

 

705,110

 

 

 

634,729

 

 

 

815,672

 

 

 

585,662

 

 

 

351,393

 

 

 

4,760,631

 

 

 

4,497,336

 

Total

 

$

1,656,029

 

 

$

808,271

 

 

$

735,598

 

 

$

897,139

 

 

$

712,829

 

 

$

1,185,808

 

 

$

5,995,674

 

 

$

5,732,379

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings and NOW accounts

 

$

519,844

 

 

$

178,039

 

 

$

178,039

 

 

$

178,039

 

 

$

178,039

 

 

$

827,482

 

 

$

2,059,482

 

 

$

2,059,482

 

Money market accounts

 

 

567,713

 

 

 

45,926

 

 

 

45,926

 

 

 

45,926

 

 

 

45,926

 

 

 

127,035

 

 

 

878,452

 

 

 

878,452

 

Other time deposits

 

 

558,648

 

 

 

188,627

 

 

 

22,977

 

 

 

15,049

 

 

 

45,031

 

 

 

331

 

 

 

830,663

 

 

 

824,300

 

Short-term borrowings/debt

 

 

228,664

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

228,664

 

 

 

338,486

 

Long-term borrowings/debt

 

 

199,422

 

 

 

65,024

 

 

 

99,573

 

 

 

—

 

 

 

225,000

 

 

 

120,001

 

 

 

709,020

 

 

 

588,528

 

Total

 

$

2,074,291

 

 

$

477,616

 

 

$

346,515

 

 

$

239,014

 

 

$

493,996

 

 

$

1,074,849

 

 

$

4,706,281

 

 

$

4,689,248

 

Rate sensitive assets – rate sensitive liabilities

 

$

(418,262

)

 

$

330,655

 

 

$

389,083

 

 

$

658,125

 

 

$

218,833

 

 

$

110,959

 

 

$

1,289,393

 

 

 

 

Cumulative GAP

 

 

(418,262

)

 

 

(87,607

)

 

 

301,476

 

 

 

959,601

 

 

 

1,178,434

 

 

 

1,289,393

 

 

 

 

 

 

 

Cumulative amounts as % of total Rate sensitive assets

 

 

-7.0

%

 

 

5.5

%

 

 

6.5

%

 

 

11.0

%

 

 

3.6

%

 

 

1.9

%

 

 

 

 

 

 

Cumulative Ratio

 

 

-7.0

%

 

 

-1.5

%

 

 

5.0

%

 

 

16.0

%

 

 

19.7

%

 

 

21.5

%

 

 

 

 

 

 

The static GAP analysis shows that at September 30, 2017,March 31, 2023, 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.





61





Capital Resources


At September 30, 2017,March 31, 2023, the Company’s stockholders' equity increased $31$28.7 million or 11%4.5%, to $311$661.9 million from $281$633.2 million as of December 31, 2016.2022. During the first ninethree months of 2017,2023, net income contributed $22.1$19.2 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 $7.8$13.6 million, net of tax.


Dividends of $4.7 million were paid during the first three months of 2023.

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”). and the Federal Deposit Insurance Corporation, as applicable. 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 September 30, 2017March 31, 2023 and December 31, 2016,2022, the Company and First Mid Bank met all capital adequacy requirements.



62



As permitted by the interim final rule issued on March 27, 2020 by the federal banking regulatory agencies, the Company elected the option to delay the estimated impact on regulatory capital of adopting ASU 2016-13, which was effective January 1, 2020. The initial impact of adoption of ASU 2016-13, as well as 25% of the quarterly increases in allowance for credit losses subsequent to adoption of ASU 2016-13 was delayed for two years. After two years, the cumulative amount of these adjustments is being phased out of the regulatory capital calculation over a three-year period, with 75% of the adjustments included in 2022, 50% of the adjustments included in 2023 and 25% of the adjustments included in 2024. After five years, the temporary delay of ASU 2016-13 adoption will be fully reversed.

57



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
 Amount Ratio Amount Ratio Amount Ratio
September 30, 2017           
Total Capital (to risk-weighted assets)           
Company$289,666
 13.26% $174,785
 > 8.00% N/A
 N/A
First Mid Bank281,678
 12.94
 174,210
 > 8.00 $217,763
 > 10.00%
Tier 1 Capital (to risk-weighted assets) 
  
  
    
  
Company271,077
 12.41
 131,089
 > 6.00 N/A
 N/A
First Mid Bank263,089
 12.08
 130,658
 > 6.00 174,210
 > 8.00
Common Equity Tier 1 Capital (to risk-weighted assets)  
    
  
Company247,104
 11.31
 98,317
 > 4.50 N/A
 N/A
First Mid Bank263,089
 12.08
 97,993
 > 4.50 141,546
 > 6.50
Tier 1 Capital (to average assets) 
  
  
    
  
Company271,077
 9.84
 110,225
 > 4.00 N/A
 N/A
First Mid Bank263,089
 9.57
 109,968
 > 4.00 137,460
 > 5.00
December 31, 2016 
  
      
  
Total Capital (to risk-weighted assets) 
  
  
    
  
Company$270,062
 12.79% $168,902
 > 8.00% N/A
 N/A
First Mid Bank197,552
 12.44
 127,054
 > 8.00 $158,817
 > 10.00%
First Clover Leaf Bank78,145
 15.08
 41,459
 > 8.00 51,824
 > 10.00%
Tier 1 Capital (to risk-weighted assets) 
    
    
  
Company253,258
 11.99
 126,677
 > 6.00 N/A
 N/A
First Mid Bank180,826
 11.39
 95,290
 > 6.00 127,054
 > 8.00
First Clover Leaf Bank78,145
 15.08
 31,094
 > 6.00 41,459
 > 8.00
Common Equity Tier 1 Capital (to risk-weighted assets)        
Company229,341
 10.86
 95,008
 > 4.50 N/A
 N/A
First Mid Bank180,826
 11.39
 71,468
 > 4.50 103,231
 > 6.50
First Clover Leaf Bank78,145
 15.08
 23,321
 > 4.50 33,685
 > 6.50
Tier 1 Capital (to average assets) 
  
  
    
  
Company253,258
 9.19
 110,242
 > 4.00 N/A
 N/A
First Mid Bank180,826
 8.62
 83,938
 > 4.00 104,922
 > 5.00
First Clover Leaf Bank78,145
 12.04
 25,963
 > 4.00 32,453
 > 5.00

 

 

Actual

 

 

Required Minimum For
Capital Adequacy
Purposes

 

To Be Well-Capitalized
Under Prompt Corrective
Action Provisions

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

Amount

 

 

Ratio

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital (to risk-weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

$

817,545

 

 

 

15.74

%

 

$

545,260

 

 

> 10.50%

 

N/A

 

 

N/A

First Mid Bank

 

 

762,009

 

 

 

14.72

%

 

 

543,584

 

 

> 10.50%

 

$

517,700

 

 

> 10.00%

Tier 1 capital (to risk-weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

 

668,971

 

 

 

12.88

%

 

 

441,401

 

 

> 8.50%

 

N/A

 

 

N/A

First Mid Bank

 

 

708,028

 

 

 

13.68

%

 

 

440,045

 

 

> 8.50%

 

 

414,160

 

 

> 8.00%

Common equity tier 1 capital (to risk-weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

 

649,565

 

 

 

12.51

%

 

 

363,507

 

 

> 7.00%

 

N/A

 

 

N/A

First Mid Bank

 

 

708,028

 

 

 

13.68

%

 

 

362,390

 

 

> 7.00%

 

 

336,505

 

 

> 6.50%

Tier 1 capital (to average assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

 

668,971

 

 

 

12.88

%

 

 

270,608

 

 

> 4.00%

 

N/A

 

 

N/A

First Mid Bank

 

 

708,028

 

 

 

13.68

%

 

 

269,533

 

 

> 4.00%

 

 

336,916

 

 

> 5.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital (to risk-weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

$

801,966

 

 

 

15.20

%

 

$

554,164

 

 

>10.50%

 

N/A

 

 

N/A

First Mid Bank

 

 

745,624

 

 

 

14.18

%

 

 

552,161

 

 

>10.50%

 

$

525,868

 

 

> 10.00%

Tier 1 capital (to risk-weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

 

654,453

 

 

 

12.40

%

 

 

448,609

 

 

> 8.50%

 

N/A

 

 

N/A

First Mid Bank

 

 

692,664

 

 

 

13.17

%

 

 

446,987

 

 

> 8.50%

 

 

420,694

 

 

> 8.00%

Common equity tier 1 capital (to risk-weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

 

635,089

 

 

 

12.03

%

 

 

369,442

 

 

> 7.00%

 

N/A

 

 

N/A

First Mid Bank

 

 

692,664

 

 

 

13.17

%

 

 

368,107

 

 

> 7.00%

 

 

341,814

 

 

> 6.50%

Tier 1 capital (to average assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

 

654,453

 

 

 

9.68

%

 

 

268,875

 

 

> 4.00%

 

N/A

 

 

N/A

First Mid Bank

 

 

692,664

 

 

 

10.22

%

 

 

270,990

 

 

> 4.00%

 

 

338,738

 

 

> 5.00%

The Company's risk-weighted assets, capital, and capital ratios for September 30, 2017March 31, 2023 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 September 30, 2017, bothMarch 31, 2023, 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.  First Clover Leaf Bank merged into First Mid Bank during the first quarter of 2017.




63



58



Stock Plans


Participants may purchase Company stock under the following four plans of the Company: theThe Deferred Compensation Plan, the First Retirement and Savings Plan, the Dividend Reinvestment Plan, and the Stock 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, 2016.


2022.

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


A

Following the stockholders’ approval at the 2021 annual meeting of the Company, a maximum of 149,983399,983 shares of common stock may be issued under the SI Plan. There were no stock options granted in 2017 or 2016.  The Company awarded 11,47360,550 and 13,91226,000 restricted stock awards during 2023 and 2022, respectively and 37,900 and 37,150 as stock unit awards during 20172023 and 2016, respectively,2022, respectively.

Employee Stock Purchase Plan

At the Annual Meeting of Stockholders held April 25, 2018, the stockholders approved the First Mid-Illinois Bancshares, Inc. Employee Stock Purchase Plan (“ESPP”). The ESPP is intended to promote the interests of the Company by providing eligible employees with the opportunity to purchase shares of common stock of the Company at a 15% discount through payroll deductions. The ESPP is also intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code. A maximum of 600,000 shares of common stock may be issued under the 2007 Stock Incentive Plan.


ESPP. As of March 31, 2023, 54,739 shares have been issued pursuant to the ESPP. During the three months ended March 31, 2023 and 2022, 7,963 shares and 3,149 shares, respectively, were issued pursuant to the ESPP.

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. During 2022, the Company repurchased 170 shares. All of these shares were a result of shares withheld for taxes on vested employee stock incentives. The Company has approximately $4.1 million in remaining capacity under its existing repurchase programs approvedprogram.

Although the Company adopted the repurchase plan, the Company may make discretionary repurchases in the open market or in privately negotiated transactions from time to time. The timing, manner, price and amount of any such repurchases will be determined by the BoardCompany at its discretion and will depend upon a variety 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 nine months endedSeptember 30, 2017, the Company did not repurchase any shares. Since 1998, the Company has repurchased a total of 2,042,993 shares at a totalfactors including economic and market conditions, price, of approximately $69.5 million.  As of September 30, 2017, the Company is authorized per all repurchase programs to purchase $7.2 million in additional shares.








64





applicable legal requirements and other factors.

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 forof the Company's liquidity sources include:


•
First Mid Bank has $35$100 million available in overnight federal fund lines, including $10$30 million from First Horizon Bank, N.A., $20 million from U.S. Bank, N.A., $10 million from Wells Fargo Bank, N.A., $15 million from The Northern Trust Company and $15$25 million from Zions Bank. As of June 30, 2022, First Mid had purchased $10 million of federal funds 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 September 30, 2017,March 31, 2023, 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 September 30, 2017,March 31, 2023, the excess collateral at the FHLB would support approximately $109.0$416 million of additional advances for First Mid Bank.

59


•
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 September 30, 2017,March 31, 2023, the Company had a revolving credit agreement in the amount of $10$15 million with The Northern Trust Company with an outstanding balance of $0 million and $10$15 million in available funds. This loan was renewed on April 14, 20177, 2023 for one year as a revolving credit agreement. The interest rate is floating at 2.25% over the federal funds rate. The loan is secured by all of the stock of First Mid Bank, including requirements for operating and capital ratios.unsecured. The Company and its subsidiary bank were in compliance with the then existing covenants at September 30, 2017March 31, 2023 and 20162022 and December 31, 2016.2022.

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 September 30, 2017March 31, 2023 (in thousands):

 Total Less than
1 year		 1-3 years 3-5 years More than
5 years
Time deposits$321,376
 $205,597
 $83,641
 $30,965
 $1,173
Debt35,870
 3,750
 7,500
 —
 24,620
Other borrowings203,360
 153,360
 35,000
 10,000
 5,000
Operating leases43,921
 2,517
 4,383
 3,520
 33,501
Supplemental retirement597
 100
 142
 100
 255
 $605,124
 $365,324
 $130,666
 $44,585
 $64,549

 

 

 

 

 

Less than

 

 

 

 

 

 

 

 

More than

 

 

 

Total

 

 

1 year

 

 

1-3 years

 

 

3-5 years

 

 

5 years

 

Time deposits

 

$

830,663

 

 

$

558,648

 

 

$

211,604

 

 

$

60,080

 

 

$

331

 

Debt

 

 

113,999

 

 

 

—

 

 

 

3,943

 

 

 

—

 

 

 

110,056

 

Other borrowing

 

 

823,685

 

 

 

408,680

 

 

 

70,005

 

 

 

225,000

 

 

 

120,000

 

Operating leases

 

 

17,183

 

 

 

2,967

 

 

 

4,614

 

 

 

3,731

 

 

 

5,871

 

Supplemental retirement

 

 

1,828

 

 

 

50

 

 

 

100

 

 

 

150

 

 

 

1,528

 

 

 

$

1,787,358

 

 

$

970,345

 

 

$

290,266

 

 

$

288,961

 

 

$

237,786

 

For the ninethree months endedSeptember 30, 2017, March 31, 2023, net cash of $32.8$20.3 million was provided fromby operating activities, $89.7 million was provided by investing activities, and $17.9 million and $121.1$93.3 million was used in investing activities and financing activities, respectively.activities. In total, cash and cash equivalents decreasedincreased by $106.2$16.7 million since year-end 2016.



65





2022.

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 September 30, 2017March 31, 2023 and December 31, 20162022 were as follows (in thousands):
 September 30, 2017 December 31, 2016
Unused commitments and lines of credit:   
Commercial real estate$71,719
 $128,576
Commercial operating259,104
 236,182
Home equity38,811
 40,896
Other58,927
 70,092
Total$428,561
 $475,746
Standby letters of credit$11,431
 $9,339

 

 

March 31, 2023

 

 

December 31, 2022

 

Unused commitments and lines of credit:

 

 

 

 

 

 

Commercial real estate

 

$

174,593

 

 

$

147,702

 

Commercial operating

 

 

657,253

 

 

 

655,676

 

Home equity

 

 

64,938

 

 

 

63,570

 

Other

 

 

314,181

 

 

 

307,030

 

Total

 

$

1,210,965

 

 

$

1,173,978

 

Standby letters of credit

 

$

9,389

 

 

$

10,162

 

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.


60

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.


66



The Company's deferred revenue under standby letters of credit was nominal.

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

61



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, 2016.2022. 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, 2016.



2022.

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.





67



62



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 were 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 was captioned Raul v. Highlander, et al , Case No. 16- L-703, and was filed on May 20, 2016, in the Circuit Court of Madison County, Illinois, Third Judicial District. On July 12, 2017, the defendants' motion to dismiss was granted and all claims were dismissed with prejudice. The plaintiff did not appeal this decision prior to August 11, 2017 deadline for such an appeal to be filed.

From time to time the Company and its subsidiaries may be involved in litigation that the Company believes is of a type common to our industry. None of any such existing claims are believed to be individually material at this time to the Company, although the outcome of any such existing claims cannot be predicted with certainty.


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, 2016.


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

2022.

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

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

 

January 1, 2023 - January 31, 2023

 

 

—

 

 

$

—

 

 

 

—

 

 

$

4,066,000

 

February 1, 2023 - February 28, 2023

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,066,000

 

March 1, 2023 - March 31, 2023

 

 

170

 

 

 

27.64

 

 

 

170

 

 

 

4,061,000

 

Total

 

 

170

 

 

$

27.64

 

 

 

170

 

 

$

4,061,000

 

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.MINE SAFETY DISCLOSURES

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5.OTHER INFORMATION

ITEM 5. OTHER INFORMATION

None.



ITEM 6.EXHIBITS

63

ITEM 6. EXHIBITS

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


68



Exhibit

Number

Exhibit Index to Quarterly Report on Form 10-Q Description and Filing or Incorporation Reference

2.1

Agreement and Plan of Merger by and among First Mid Bancshares, Inc., Eagle Sub LLC, Blackhawk Bancorp, Inc., and the sellers as defined therein, dated March 20, 2023

Incorporated by reference to Exhibit 2.1 to First Mid Bancshares, Inc.’s Form 8-K filed with the Securities and Exchange Commission on March 21, 2023

10.1

Sixth Amendment to the Sixth Amended and Restated Credit Agreement by and between First Mid Bancshares, Inc. and The Northern Trust Company, dated April 7, 2023

Incorporated by reference to Exhibit 10.1 to First Mid Bancshares, Inc.’s Current Report on Form 8-K filed with the SEC on April 11, 2023

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.INS

Inline XBRL Instance Document – The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

104

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (formatted as Inline XBRL and contained in Exhibits 101)

Exhibits omitted pursuant to Item 601(a)(5) of Regulation S-K. Copies of any omitted exhibit will be furnished to the SEC upon request.

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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:  November 6, 2017

dively.jpg
Joseph R. Dively
President and Chief Executive Officer


smith.jpg
Matthew K. Smith
Chief Financial Officer






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FIRST MID BANCSHARES, INC.

(Registrant)

Date: May 9, 2023

Exhibit Index to Quarterly Report on Form 10-Q

/s/ Joseph R. Dively

Exhibit NumberDescription and Filing or Incorporation Reference

Joseph R. Dively

4.1The 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

President and its subsidiaries on a consolidated basisChief Executive Officer

/s/ Matthew K. Smith

10.1
Sales Agency Agreement, dated August 16, 2017, by and among the Company, Sander O'Neill & Partners, and FIG Partners, LLC (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 August 17, 2017)

Matthew K. Smith

11.1
Statement re:  Computation of Earnings Per Share (Filed herewith on page 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 September 30, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at September 30, 2017 and December 31, 2016, (ii) the Consolidated Statements of Income for the three and nine months ended September 30, 2017 and 2016, (iii) the Consolidated Statements of Cash Flows for the nine months ended September, 2017 and 2016, and (iv) the Notes to Consolidated

Chief Financial Statements.

Officer


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