~~0000700565 fmbh:DeltaBancshareCompanyMember us-gaap:UseRightsMember 2022-02-14~~

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 ended~~September~~June 30, ~~2022~~2023

☐ 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)


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


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

~~(217)~~ (217) 234-7454

(Registrant's telephone number, including area code)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	FMBH	NASDAQ Global Market

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

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes☒ 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 ☒
Non-accelerated filer ☐		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 ☒ No

As of ~~November~~August 8, ~~2022, 20,463,261~~2023, 20,539,816 common shares, $4.00 par value, were outstanding.

PART I

ITEM 1. FINANCIAL STATEMENTS

First Mid Bancshares, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)


(In thousands, except share data)	September 30, 2022			December 31, 2021			June 30, 2023			December 31, 2022
Assets
Cash and due from banks:
Non-interest bearing	$	141,130		$	90,907		$	133,544		$	138,412
Interest bearing		12,429			76,335			32,549			6,394
Federal funds sold		7,395			1,360			8,160			7,627
Cash and cash equivalents		160,954			168,602			174,253			152,433
Certificates of deposit		1,470			2,450			1,715			1,470
Investment securities:
Available-for-sale, at fair value		1,230,788			1,421,422
Held-to-maturity, at amortized cost (estimated fair value of $2,930 and $7,035 at September 30, 2022 and December 31, 2021, respectively)		2,930			7,030
Available-for-sale, at fair value (amortized cost of $1,377,803 and $1,432,372 at June 30, 2023 and December 31, 2022, respectively)								1,164,333			1,218,985
Held-to-maturity, at amortized cost (estimated fair value of $2,971 and $2,954 at June 30, 2023 and December 31, 2022, respectively)								2,971			2,954
Equity securities, at fair value		317			397			409			311
Loans held for sale		467			2,748			2,713			338
Loans		4,719,823			3,992,775			4,810,703			4,825,874
Less allowance for credit losses		(58,777	)		(54,655	)		(58,719	)		(59,093	)
Net loans		4,661,046			3,938,120			4,751,984			4,766,781
Interest receivable		25,975			19,868			28,980			28,357
Other real estate owned		4,322			4,984			3,978			4,261
Premises and equipment, net		90,659			81,484			89,924			90,473
Goodwill		140,094			111,853			146,363			140,412
Intangible assets, net		30,803			29,523			32,252			29,485
Bank owned life insurance		150,831			132,375			152,538			151,756
Right of use lease assets		15,194			15,116			14,895			15,774
Deferred tax asset, net								72,284			72,254
Other assets		135,533			50,610			64,277			68,171
Total assets	$	6,651,383		$	5,986,582		$	6,703,869		$	6,744,215
Liabilities and stockholders’ equity
Deposits:
Non-interest bearing	$	1,334,686		$	1,246,673		$	1,171,047		$	1,256,514
Interest bearing		4,148,512			3,709,813			4,048,538			4,000,487
Total deposits		5,483,198			4,956,486			5,219,585			5,257,001
Securities sold under agreements to repurchase		220,707			146,268			209,170			221,414
Interest payable		3,007			1,346			4,344			3,346
FHLB borrowings		176,232			86,446			449,979			465,071
Other borrowings		5,000			—
Junior subordinated debentures, net		19,322			19,195			19,448			19,364
Subordinated debt, net		94,515			94,400			94,632			94,553
Lease liabilities		15,425			15,322			15,176			16,035
Other liabilities		33,262			33,225			30,848			34,276
Total liabilities		6,050,668			5,352,688			6,043,182			6,111,060
Stockholders’ equity:
Common stock ($4 par value; authorized 30,000,000 shares; issued 21,083,341 and 18,708,746 shares in 2022 and 2021, respectively; outstanding 20,454,636 and 18,080,303 shares in 2022 and 2021, respectively)		86,334			76,835
Common stock ($4 par value; authorized 30,000,000 shares; issued 21,167,452 and 21,091,466 shares in 2023 and 2022, respectively; outstanding 20,528,192 and 20,452,376 shares in 2023 and 2022, respectively)								86,670			86,366
Additional paid-in capital		426,767			340,419			428,504			427,001
Retained earnings		273,335			234,162			315,636			289,284
Deferred compensation		1,518			2,517			1,502			2,064
Accumulated other comprehensive loss		(167,663	)		(831	)		(151,566	)		(151,507	)
Less treasury stock, at cost (628,705 shares in 2022 and 628,443 shares in 2021)		(19,576	)		(19,208	)
Less treasury stock, at cost (639,260 shares in 2023 and 639,090 shares in 2022)								(20,059	)		(20,053	)
Total stockholders’ equity		600,715			633,894			660,687			633,155
Total liabilities and stockholders’ equity	$	6,651,383		$	5,986,582		$	6,703,869		$	6,744,215

See accompanying notes to unaudited condensed consolidated financial statements.

First Mid Bancshares, Inc.

Condensed Consolidated Statements of Income (unaudited)

(In thousands, except per share data)


	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,					Six months ended June 30,
(In thousands, except per share data)	2022		2021		2022		2021		2023			2022		2023			2022
Interest income:
Interest and fees on loans	$	49,278	$	43,292	$	132,741	$	119,973	$	58,368		$	43,555	$	114,604		$	83,463
Interest on investment securities		7,302		5,835		22,095		16,416		7,193			7,623		14,320			14,793
Interest on certificates of deposit investments		8		14		29		42		15			9		29			21
Interest on federal funds sold		38		—		45		—		98			7		183			7
Interest on deposits with other financial institutions		128		122		272		283		456			89		665			144
Total interest income		56,754		49,263		155,182		136,714		66,130			51,283		129,801			98,428
Interest expense:
Interest on deposits		4,915		2,234		9,586		6,980		16,580			2,523		29,347			4,671
Interest on securities sold under agreements to repurchase		428		52		632		179		1,723			137		3,186			204
Interest on FHLB borrowings		1,926		359		2,842		1,178		4,084			640		8,958			916
Interest on other borrowings		1		—		6		—		—			5		9			5
Interest on junior subordinated debentures		241		137		553		416		390			166		769			312
Interest on subordinated debentures		986		985		2,958		2,954		986			986		1,974			1,972
Total interest expense		8,497		3,767		16,577		11,707		23,763			4,457		44,243			8,080
Net interest income		48,257		45,496		138,605		125,007		42,367			46,826		85,558			90,348
Provision for credit losses		142		1,103		4,001		12,679		458			907		(359	)		3,859
Net interest income after provision for credit losses		48,115		44,393		134,604		112,328		41,909			45,919		85,917			86,489
Other income:
Wealth management revenues		4,843		4,204		16,291		14,146		5,341			5,473		10,855			11,448
Insurance commissions		4,158		3,932		16,903		14,777		5,737			5,641		14,217			12,745
Service charges		2,445		1,838		6,737		4,741		2,386			2,236		4,589			4,292
Securities gains, net		79		11		81		88
Securities gains (losses), net										(6	)		2		(52	)		2
Mortgage banking revenue, net		355		1,477		1,125		4,577		332			289		482			770
ATM / debit card revenue		3,101		3,060		9,213		8,900		3,265			3,214		6,348			6,112
Bank owned life insurance		913		813		2,634		2,211		1,189			877		2,830			1,721
Other		897		1,024		3,491		2,952		1,242			827		2,696			2,594
Total other income		16,791		16,359		56,475		52,392		19,486			18,559		41,965			39,684
Other expense:
Salaries and employee benefits		24,877		21,092		74,984		69,487		23,544			25,768		49,615			50,107
Net occupancy and equipment expense		5,903		5,382		18,131		15,834		6,035			6,073		12,040			12,228
Net other real estate owned expense		58		1,507		243		3,551		27			218		160			185
FDIC insurance		479		268		1,341		1,198		1,076			436		1,539			862
Amortization of intangible assets		1,598		1,414		4,753		3,929		1,477			1,633		2,999			3,155
Stationery and supplies		361		299		997		850		315			325		607			636
Legal and professional		1,770		1,878		5,389		4,919		1,780			1,885		3,470			3,619
ATM / debit card		1,243		618		2,991		2,530		1,016			670		2,239			1,748
Marketing and donations		739		679		2,318		1,688		908			706		1,562			1,579
Other		4,521		3,184		12,342		15,948		3,864			3,801		7,388			7,821
Total other expense		41,549		36,321		123,489		119,934		40,042			41,515		81,619			81,940
Income before income taxes		23,357		24,431		67,590		44,786		21,353			22,963		46,263			44,233
Income taxes		5,418		6,105		15,277		10,130		4,786			5,205		10,516			9,859
Net income	$	17,939	$	18,326	$	52,313	$	34,656	$	16,567		$	17,758	$	35,747		$	34,374
Per share data:
Basic net income per common share	$	0.88	$	1.01	$	2.61	$	1.94	$	0.81		$	0.87	$	1.74		$	1.73
Diluted net income per common share		0.88		1.01		2.60		1.94		0.80			0.86		1.74			1.72
Cash dividends declared per common share		0.230		0.220		0.670		0.630		0.23			0.22		0.46			0.44

See accompanying notes to unaudited condensed consolidated financial statements.

First Mid Bancshares, Inc.

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


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
(In thousands)	2022			2021			2022			2021			2023			2022			2023			2022
Net income	$	17,939		$	18,326		$	52,313		$	34,656		$	16,567		$	17,758		$	35,747		$	34,374
Other comprehensive income/(loss)
Unrealized gains (losses) on available-for-sale securities, net of taxes of $16,079 and $1,282 for three months ended September 30, 2022 and 2021, respectively and $68,119 and $4,655 for nine months ended September 30, 2022 and 2021, respectively		(39,367	)		(3,140	)		(166,775	)		(11,400	)
Less: reclassification adjustment for realized gains (losses) included in net income, net of taxes of $23 and $3 for three months ended September 30, 2022 and 2021, respectively and $24 and $26 for nine months ended September 30, 2022 and 2021, respectively		(56	)		(8	)		(57	)		(62	)
Unrealized losses on available-for-sale securities, net of tax benefits of $5,583 and $22,142 for three months ended June 30, 2023 and 2022, respectively and $39 and $52,040 for six months ended June 30, 2023 and 2022, respectively														(13,670	)		(54,211	)		(97	)		(127,408	)
Less: reclassification adjustment for realized gains/(losses) included in net income, net of taxes (benefit) of ($1) and $1 for three months ended June 30, 2023 and 2022, respectively and ($14) and $1 for six months ended June 30, 2023 and 2022, respectively														(5	)		1			(38	)		1
Other comprehensive loss, net of taxes		(39,423	)		(3,148	)		(166,832	)		(11,462	)		(13,665	)		(54,212	)		(59	)		(127,409	)
Comprehensive income/(loss)	$	(21,484	)	$	15,178		$	(114,519	)	$	23,194		$	2,902		$	(36,454	)	$	35,688		$	(93,035	)

See accompanying notes to unaudited condensed consolidated financial statements.

First Mid Bancshares, Inc.

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

For the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022


(In thousands)	Common Stock			Additional Paid-In- Capital			Retained Earnings			Deferred Compensation		Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total			Common Stock			Additional Paid-In- Capital			Retained Earnings			Deferred Compensation		Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
June 30, 2022	$	86,310		$	426,562		$	260,080		$	974	$	(128,240	)	$	(19,418	)	$	626,268
March 31, 2023																					$	86,636		$	428,283		$	303,768		$	963	$	(137,901	)	$	(19,884	)	$	661,865
Net income		—			—			17,939			—		—			—			17,939			—			—			16,567			—		—			—			16,567
Other comprehensive loss, net tax		—			—			—			—		(39,423	)		—			(39,423	)		—			—			—			—		(13,665	)		—			(13,665	)
Cash dividends on common stock (.230/share)		—			—			(4,684	)		—		—			—			(4,684	)
Forfeiture of 267 restricted shares pursuant to the 2017 stock incentive plan		(1	)		(8	)		—			—		—			—			(9	)
Issuance of 6,104 common shares pursuant to the employee stock purchase plan		25			160			—			—		—			—			185
Cash dividends on common stock (.230/share)																						—			—			(4,699	)		—		—			—			(4,699	)
Forfeiture of 700 restricted shares pursuant to the 2017 stock incentive plan																						(3	)		(19	)		—			—		—			—			(22	)
Issuance of 9,175 common shares pursuant to the employee stock purchase plan																						37			176			—			—		—			—			213
Deferred compensation		—			—			—			166		—			(158	)		8			—			—			—			166		—			(175	)		(9	)
Vested restricted shares/units compensation expense		—			53			—			378		—			—			431			—			64			—			373		—			—			437
September 30, 2022	$	86,334		$	426,767		$	273,335		$	1,518	$	(167,663	)	$	(19,576	)	$	600,715
June 30, 2023																					$	86,670		$	428,504		$	315,636		$	1,502	$	(151,566	)	$	(20,059	)	$	660,687

June 30, 2021	$	76,797		$	340,452		$	206,934		$	1,742	$	8,781		$	(18,640	)	$	616,066
March 31, 2022																					$	86,264		$	426,148		$	246,805		$	468	$	(74,028	)	$	(19,272	)	$	666,385
Net income		—			—			18,326			—		—			—			18,326			—			—			17,758			—		—			—			17,758
Other comprehensive loss, net tax		—			—			—			—		(3,148	)		—			(3,148	)		—			—			—			—		(54,212	)		—			(54,212	)
Cash dividends on common stock (.220/share)		—			—			(3,965	)		—		—			—			(3,965	)
Issuance of 1 common shares pursuant to the dividend reinvestment plan		—			1			—			—		—			—			1
Issuance of 1,952 common shares pursuant to the deferred compensation plan		7			71			—			—		—			—			78
Issuance costs pursuant to the acquisition of Delta Bancshares Company		—			(144	)		—			—		—			—			(144	)
Issuance of 2,700 common shares pursuant to the employee stock purchase plan		11			93			—			—		—			—			104
Cash dividends on common stock (.220/share)																						—			—			(4,483	)		—		—			—			(4,483	)
Issuance of 6,439 common shares pursuant to the deferred compensation plan																						26			224			—			—		—			—			250
Issuance of 5,177 common shares pursuant to the employee stock purchase plan																						20			149			—			—		—			—			169
Deferred compensation		—			—			—			121		—			(121	)		—			—			—			—			146		—			(146	)		—
Tax benefit related to deferred compensation distributions		—			(355	)		—			—		—			—			(355	)
Vested restricted shares/units compensation expense		—			—			—			262		—			—			262			—			41			—			360		—			—			401
September 30, 2021	$	76,815		$	340,118		$	221,295		$	2,125	$	5,633		$	(18,761	)	$	627,225
June 30, 2022																					$	86,310		$	426,562		$	260,080		$	974	$	(128,240	)	$	(19,418	)	$	626,268

First Mid Bancshares, Inc.

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

For the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(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

—

—

52,313

—

—

—

52,313

Other comprehensive loss, net tax

—

—

—

—

(166,832
)

—

(166,832
)
Cash dividends on common stock (.670/share)

—

—

(13,140
)

—

—

—

(13,140
)
Issuance of 8,378 common shares pursuant to the deferred compensation plan

34

297

—

—

—

—

331

Issuance of 54,567 restricted shares pursuant to 2017 stock incentive plan

218

2,032

—

—

—

—

2,250

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

20

179

—

—

—

—

199

Issuance of 14,430 common shares pursuant to the employee stock purchase plan

58

420

—

—

—

—

478

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

9,169

83,003

—

—

—

—

92,172

Issuance costs pursuant to acquisition of Delta Bancshares Company

—

(29
)

—

—

—

—

(29
)
Purchase of 262 shares of treasury stock

—

—

—

—

—

(11
)

(11
)
Deferred compensation

—

—

—

(2,206
)

—

(357
)

(2,563
)
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

—

133

—

1,207

—

—

1,340

September 30, 2022

$
86,334

$
426,767

$
273,335

$
1,518

$
(167,663
)

$
(19,576
)

$
600,715


(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		—		—			35,747			—			—			—			35,747
Other comprehensive loss, net tax		—		—			—			—			(59	)		—			(59	)
Cash dividends on common stock (.460/share)		—		—			(9,395	)		—			—			—			(9,395	)
Issuance of 54,498 restricted shares pursuant to 2017 stock incentive plan, net of forfeitures		218		1,404			—			—			—			—			1,622
Issuance of 4,350 common shares pursuant to 2017 stock incentive plan		17		103			—			—			—			—			120
Issuance of 17,138 common shares pursuant to the employee stock purchase plan		69		360			—			—			—			—			429
Purchase of 170 shares of treasury stock		—		—			—			—			—			(5	)		(5	)
Deferred compensation		—		—			—			(1,189	)		—			(1	)		(1,190	)
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		—		117			—			627			—			—			744
June 30, 2023	$	86,670	$	428,504		$	315,636		$	1,502		$	(151,566	)	$	(20,059	)	$	660,687

(In thousands)

Common
Stock

Additional
Paid-In-
Capital

Retained
Earnings

Deferred
Compensation

Accumulated
Other
Comprehensive
Income

Treasury
Stock

Total

December 31, 2020

$
71,449

$
297,806

$
197,726

$
2,980

$
17,095

$
(18,828
)

$
568,228

Net income

—

—

34,656

—

—

—

34,656

Other comprehensive loss, net tax

—

—

—

—

(11,462
)

—

(11,462
)
Cash dividends on common stock (.630/share)

—

—

(11,087
)

—

—

—

(11,087
)
Issuance of 8,615 common shares pursuant to the dividend reinvestment plan

32

301

—

—

—

—

333

Issuance of 7,493 common shares pursuant to deferred compensation plan

30

238

—

—

—

—

268

Issuance of 27,750 restricted shares pursuant to the 2017 stock incentive plan

111

831

—

—

—

—

942

Issuance of 2,375 common shares pursuant to the 2017 stock incentive plan

10

75

—

—

—

—

85

Issuance of 1,262,246 common shares pursuant to acquisition of LINCO Bancshares, Inc., net proceeds

5,049

39,142

—

—

—

—

44,191

Issuance of 25,000 common shares pursuant to the acquisition of BBM & Associates, Inc., net proceeds

100

1,009

—

—

—

—

1,109

Issuance costs pursuant to the acquisition of Delta Bancshares Company

—

(144
)

—

—

—

—

(144
)
Issuance of 8,439 common shares pursuant to the employee stock purchase plan

34

228

—

—

—

—

262

Deferred compensation

—

—

—

(67
)

—

67

0

Grant of restricted units pursuant to 2017 stock incentive plan

—

1,216

—

—

—

—

1,216

Release of restricted units pursuant to 2017 stock incentive plan

—

(584
)

—

—

—

—

(584
)
Vested restricted shares/units compensation expense

—

—

—

(788
)

—

—

(788
)
September 30, 2021

$
76,815

$
340,118

$
221,295

$
2,125

$
5,633

$
(18,761
)

$
627,225


(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		—		—			34,374			—			—			—			34,374
Other comprehensive loss, net tax		—		—			—			—			(127,409	)		—			(127,409	)
Cash dividends on common stock (.440/share)		—		—			(8,456	)		—			—			—			(8,456	)
Issuance of 8,378 common shares pursuant to the deferred compensation plan		34		297			—			—			—			—			331
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 8,326 common shares pursuant to the employee stock purchase plan		33		260			—			—			—			—			293
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		—		(29	)		—			—			—			—			(29	)
Purchase of 262 treasury shares		—		—			—			—			—			(11	)		(11	)
Deferred compensation		—		—			—			(2,372	)		—			(199	)		(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		—		80			—			829			—			—			909
June 30, 2022	$	86,310	$	426,562		$	260,080		$	974		$	(128,240	)	$	(19,418	)	$	626,268

See accompanying notes to unaudited condensed consolidated financial statements.

First Mid Bancshares, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

~~Flows~~


	Six months ended June 30,
(In thousands)	2023			2022
Cash flows from operating activities:
Net income	$	35,747		$	34,374
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		(359	)		3,859
Depreciation, amortization and accretion, net		6,868			7,653
Change in cash surrender value of bank owned life insurance		(1,854	)		(1,720	)
Gain on redemption of bank owned life insurance		(976	)		—
Stock-based compensation expense		744			909
Operating lease payments		(1,577	)		(1,517	)
Loss (gain) on investment securities, net		52			(2	)
Loss on sales and write downs of other real estate owned, net		70			69
Loss on sale of other assets		—			85
Gain on sale of loans held for sale, net		(518	)		(712	)
Increase in accrued interest receivable		(623	)		(1,683	)
Increase (decrease) in accrued interest payable		991			(127	)
Origination of loans held for sale		(28,189	)		(34,438	)
Proceeds from sale of loans held for sale		26,332			36,612
Increase in other investment		—			(460	)
Decrease (increase) in other assets		5,787			(13,402	)
Decrease in other liabilities		(4,337	)		(9,465	)
Net cash provided by operating activities		38,158			20,111
Cash flows from investing activities:
Proceeds from maturities of certificates of deposit investments		—			735
Purchases of certificates of deposit investments		(245	)		—
Proceeds from sales of securities available-for-sale		6,477			—
Proceeds from maturities of securities available-for-sale		47,719			82,525
Proceeds from maturities of securities held-to-maturity		—			5,000
Purchases of securities available-for-sale		(1,063	)		(10,768	)
Purchase of securities held-to-maturity		(17	)		—
Net decrease (increase) in loans		14,508			(236,593	)
Purchases of premises and equipment		(1,908	)		(2,760	)
Proceeds from sales of other real property owned		767			782
Proceeds from bank owned life insurance death benefit		976			—
Net cash (used in) provided by acquisition		(10,041	)		67,323
Net cash provided by (used in) investing activities		57,173			(93,756	)
Cash flows from financing activities:
Net decrease in deposits		(37,416	)		(197,885	)
Decrease in repurchase agreements		(12,244	)		(6,857	)
Proceeds from FHLB advances		160,000			325,000
Repayment of FHLB advances		(175,000	)		(80,000	)
Proceeds from issuance of common stock		549			823
Direct expenses related to capital transactions		—			(29	)
Purchase of treasury stock		(5	)		(11	)
Dividends paid on common stock		(9,395	)		(8,454	)
Net cash (used in) provided by financing activities		(73,511	)		42,587
Increase (decrease) in cash and cash equivalents		21,820			(31,058	)
Cash and cash equivalents at beginning of period		152,433			168,602
Cash and cash equivalents at end of period	$	174,253		$	137,544

~~(unaudited)~~

Nine months ended Sepetember 30,

(In thousands)

2022

2021

Cash flows from operating activities:

Net income

$
52,313

$
34,656

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

Provision for credit losses

4,001

12,679

Depreciation, amortization and accretion, net

11,502

10,131

Change in cash surrender value of bank owned life insurance

(2,634
)

(2,211
)
Stock-based compensation expense

1,342

786

Operating lease payments

(2,286
)

(2,161
)
Gain on investment securities, net

(81
)

(88
)
Loss on sales and write downs of other real estate owned, net

103

6,870

Loss (gain) on sale of other assets

76

(154
)
Gain on sale of loans held for sale, net

(1,060
)

(3,426
)
(Increase) decrease in accrued interest receivable

(4,335
)

195

Increase (decrease) in accrued interest payable

1,207

(519
)
Origination of loans held for sale

(53,591
)

(113,630
)
Proceeds from sale of loans held for sale

56,932

117,083

(Increase) decrease in other investment

6

(442
)
Increase in other assets

(10,187
)

(18,326
)
Increase in other liabilities

952

5,236

Net cash provided by operating activities

54,260

46,679

Cash flows from investing activities:

Proceeds from maturities of certificates of deposit investments

1,225

245

Purchases of certificates of deposit investments

(245
)

(245
)
Proceeds from sales of securities available-for-sale

27,396

611

Proceeds from maturities of securities available-for-sale

117,799

182,803

Proceeds from maturities of securities held-to-maturity

5,000

—

Purchases of securities available-for-sale

(10,768
)

(552,294
)
Net (increase) decrease in loans

(309,664
)

16,683

Purchases of premises and equipment

(3,874
)

(2,367
)
Proceeds from sales of other real property owned

821

8,602

Investment in banked owned life insurance

—

(30,000
)
Net cash provided by acquisition

67,323

27,061

Net cash used in investing activities

(104,987
)

(348,901
)
Cash flows from financing activities:

Net increase (decrease) in deposits

(33,665
)

305,368

Increase in federal funds purchased

5,000

—

Increase (decrease) in repurchase agreements

38,916

(57,046
)
Proceeds from FHLB advances

365,000

5,000

Repayment of FHLB advances

(320,000
)

(14,000
)
Proceeds from issuance of common stock

1,008

1,724

Direct expenses related to capital transactions

(29
)

(144
)
Purchase of treasury stock

(11
)

—

Dividends paid on common stock

(13,140
)

(10,755
)
Net cash provided by financing activities

43,079

230,147

Decrease in cash and cash equivalents

(7,648
)

(72,075
)
Cash and cash equivalents at beginning of period

168,602

417,281

Cash and cash equivalents at end of period

$
160,954

$
345,206

See accompanying notes to unaudited condensed consolidated financial statements.

First Mid Bancshares, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

~~Flows~~


	Six months ended June 30,
(In thousands)	2023		2022
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	43,245	$	7,764
Income taxes		9,705		18,880
Supplemental disclosures of noncash investing and financing activities
Loans transferred to other real estate	$	648	$	198
Initial recognition of right-of-use assets		663		715
Initial recognition of lease liabilities		663		715
Supplemental disclosures of purchases of capital stock
Fair value of assets acquired	$	11,751	$	750,063
Consideration paid:
Cash paid		10,170		15,150
Common stock issued		—		92,172
Total consideration paid		10,170		107,322
Fair value of liabilities assumed	$	1,581	$	642,741

~~(unaudited)~~

Nine months ended September 30,

(In thousands)

2022

2021

Supplemental disclosures of cash flow information

Cash paid during the period for:

Interest

$
14,916

$
11,483

Income taxes

22,463

14,306

Supplemental disclosures of noncash investing and financing activities

Loans transferred to other real estate

$
383

$
237

Initial recognition of right-of-use assets

715

—

Initial recognition of lease liabilities

715

—

Dividends reinvested in common stock

—

333

Supplemental disclosures of purchases of capital stock

Fair value of assets acquired

$
750,063

$
1,170,699

Consideration paid:

Cash paid

15,150

103,500

Common stock issued

92,172

44,191

Total consideration paid

107,322

147,691

Fair value of liabilities assumed

$
642,741

$
1,023,008

Notes to Condensed Consolidated Financial Statements (unaudited)

Note 1 -- Basis of Accounting and Consolidation

The unaudited condensed consolidated financial statements include the accounts of First Mid Bancshares, Inc. (“Company”) and its wholly owned subsidiaries: First Mid Bank & Trust, N.A. (“FirstMidBank”),FirstMidWealth ManagementCompany,FirstMidInsurance Group, Inc. (“First Mid Insurance”), and First Mid Captive, Inc. ~~The Company’s wholly owned subsidiary Jefferson Bank and Trust Company (“Jefferson Bank”), was merged into First Mid Bank on June 11, 2022.~~ 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~~June 30, ~~2022~~2023 and ~~2021,~~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~~June 30, ~~2022~~2023 presentation and there was no impact on net income or stockholders’ equity. The results of the interim period ended ~~September~~June 30, ~~2022~~2023 are not necessarily indicative of the results expected for the year ending December 31, ~~2022.~~2023. The Company operates as a one-segment entity for financial reporting purposes. The ~~2021~~2022 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.~~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 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 ~~2021~~2022 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.

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%~~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~~$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~~$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~~$15.15 million in cash and 2,292,270 shares of Company common

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

~~LINCO Bancshares, Inc.~~

On September 25, 2020, the Company and Eval Sub Inc., a wholly owned subsidiary of the Company ("Merger Sub"), entered into an Agreement and Plan of Merger (the "Merger Agreement") with LINCO Bancshares, Inc., the former parent of Providence Bank ("LINCO"), and the sellers as defined therein, pursuant to which, among other things, the Company agreed to acquire 100% of the issued and outstanding shares of LINCO pursuant to a business combination whereby Merger Sub merged with and into LINCO, whereupon the separate corporate existence of Merger Sub ceased and LINCO continued as the surviving company and a wholly owned subsidiary of the Company (the "LINCO Merger").

Subject to the terms and conditions of the Merger Agreement, at the effective time of the LINCO Merger, each share of common stock, par value $1.00 per share, of LINCO issued and outstanding immediately prior to the effective time of the LINCO Merger (other than shares held in treasury by LINCO) was converted into and become the right to receive, cash or 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 payable by the Company at the closing of the Merger was $103.5 million in cash and 1,262,246 shares of the Company’s common stock, provided that the shareholders of LINCO collectively elected pursuant to the Merger Agreement to receive varying amounts of cash or shares of common stock of the Company as consideration in the Merger. In addition, immediately prior to the closing of the proposed merger, LINCO paid a special dividend to its shareholders in the aggregate amount of $13 million.

~~The LINCO Merger closed on February 22, 2021, and Providence Bank merged into First Mid Bank on May 15, 2021.~~

~~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.

General Litigation

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

~~2021 Loan Purchase~~

On September 10, 2021, First Mid Bank completed an acquisition of loans in the St. Louis Metro market totaling $208 million. There were no loans purchased with deteriorated credit. First Mid Bank also assumed $215 million of related customer deposits and recorded a core deposit intangible asset of approximately $4.9 million that is being amortized on an accelerated basis over ten years.

Stock Plans

AttheAnnualMeetingofStockholdersheldApril26,2017,thestockholdersapprovedtheFirstMid-IllinoisBancshares,Inc. 2017 Stock Incentive Plan (“SI Plan”). The SI Plan was implemented to succeed the Company’s 2007 Stock Incentive Plan, which had a ten-year term. The SI Plan is intended to provide a means whereby directors, employees, consultants and advisors of the Company and its subsidiaries may sustain a sense of proprietorship and personal involvement in the continued development and financial success of the Company and its subsidiaries, thereby advancing the interests of the Company and its stockholders. Accordingly, directors and selected employees, consultants and advisors may be provided the opportunity to acquire shares of common stock of the Company on the terms and conditions established in the SI Plan.~~Plan.~~

Following the stockholders’ approval at the 2021 annual meeting of the Company, a maximum of 399,983 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 59,950 and ~~any~~61,400 ~~Companyplansince2008.TheCompanyhasawarded~~ ~~61,400and~~ ~~30,125~~ sharesofrestrictedstockduring ~~2022~~ the six months ended June 30, 2023 and ~~2021~~,2022, respectively, and ~~37,150~~37,900 and ~~35,400~~37,150 restricted stock units during the six months ended June 30, 2023 and 2022, ~~and~~ respectively.

~~2021~~,~~respectively.~~

Employee Stock Purchase Plan

A maximum of 600,000 ~~Code.~~

A~~maximum~~shares of ~~600,000shares~~ofcommonstockmaybeissuedundertheESPP. During the ~~nine~~six months ended June 30, 2023 and 2022, 17,138 ~~September 30, 2022and~~ ~~2021~~, ~~14,430~~ shares and ~~8,439~~8,326 shares, respectively, were issued pursuant to theESPP.

Captive Insurance Company

FirstMidCaptive,Inc.~~(the~~ “~~Captive"~~ (the “Captive"),awholly ownedsubsidiaryoftheCompanywhichwasformedandbeganoperationsin December 2019, is a Nevada-based captive insurance company. The Captive insures against certain risks unique to operations of the Company and its subsidiaries for which insurance may not be currently available or economically feasible in today's insurance marketplace. The Captive pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves. The Captive is subject to 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 theInternalRevenueCode.PursuanttoSection831(b), if gross premiums do not exceed $2,650,000if~~grosspremiums~~do~~notexceed$2,450,000,~~, thentheCaptiveistaxable solely on its investment income. The Captive is included in the Company's consolidated financial statements and its federal income return.

~~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.

Revenue Recognition

AccountingStandardsCodification606,RevenuefromContractswithCustomers(“ (“ASC606”),establishesarevenuerecognition model for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. Most of the Company’s revenue-generating transactions are not subjecttoASC606,includingrevenuegeneratedfromfinancialinstruments,suchasloansandinvestmentsecurities,andrevenue relatedtomortgageservicingactivities,whicharesubjecttootheraccountingstandards.Adescriptionoftherevenue-generating activitiesthatarewithinthescopeofASC606,andincludedinotherincomeintheCompany’scondensedconsolidatedstatements of income are as follows:~~follows:~~

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

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 asthecashisreceived.Foragencybillpolicies,FirstMidInsuranceretainsitscommissionportionofthecustomerpremium payment and remits the balance to the carrier. In both cases, the entire performance obligation is held by thecarriers.

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

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

Other income. Treasury management fees and lock box fees are received and recorded after the service performance obligation is completed. Merchant bank card fees are received from various vendors; however, the performanceobligation iswiththevendors.TheCompanyrecordsgainsonthesaleofloansandthesaleofOREOpropertiesafterthetransactions are complete and transfer of ownership hasoccurred.

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

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss included in stockholders’ equity as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 are as follows (in thousands):


	Unrealized Losses on Securities
June 30, 2023
Net unrealized losses on securities available-for-sale	$	(213,470	)
Tax benefit		61,904
Balance at June 30, 2023	$	(151,566	)

December 31, 2022
Net unrealized losses on securities available-for-sale	$	(213,387	)
Tax benefit		61,880
Balance at December 31, 2022	$	(151,507	)

~~thousands):~~

Unrealized Losses on Securities

September 30, 2022

Net unrealized losses on securities available-for-sale

$
(236,142
)
Tax benefit

68,479

Balance at September 30, 2022

$
(167,663
)

December 31, 2021

Net unrealized losses on securities available-for-sale

$
(1,170
)
Tax benefit

339

Balance at December 31, 2021

$
(831
)

Amounts reclassified from accumulated other comprehensive loss and the affected line items in the statements of income during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, were as follows (in thousands):


	Amounts Reclassified from Other Comprehensive Income (Loss)
	Three months ended June 30,						Six months ended June 30,
	2023			2022			2023			2022			Affected Line Item in the Statements of Income
Realized gain (loss) on available-for-sale securities	$	(6	)	$	2		$	(52	)	$	2		Securities (loss) gain, net
Tax effect		1			(1	)		14			(1	)	Income taxes
Total reclassifications out of accumulated other comprehensive income (loss)	$	(5	)	$	1		$	(38	)	$	1		Net reclassified amount

Amounts Reclassified from
Other Comprehensive Income

Three months ended September 30,

Nine months ended September 30,

2022

2021

2022

2021

Affected Line Item in the Statements of Income
Realized gains on available-for-sale securities

$
79

$
11

$
81

$
88

Securities (loss) gains, net
Tax effect

(23
)

(3
)

(24
)

(26
)

Income taxes
Total reclassifications out of accumulated other comprehensive income

$
56

$
8

$
57

$
62

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 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”). In March 2022, FASB issued ASU 2022-02. The amendments in this update eliminate the accounting guidance and 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 scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized ~~Cost~~.Cost.

The amendments in this update ~~are~~were effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and 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. Early adoption of the amendments in this update is permitted. An entity may elect to early adopt the amendments regarding TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The adoption of this accounting guidance ~~is not expected to have a material impact on~~resulted in updated disclosures within the Company's consolidated financial statements.

Note 2 -- Earnings Per Share

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

The components of basic and diluted net income per common share available to common stockholders for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 were as follows:


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Basic net income per common share
Available to common stockholders:
Net income	$	16,567,000	$	17,758,000	$	35,747,000	$	34,374,000
Weighted average common shares outstanding		20,528,717		20,448,799		20,510,585		19,875,516
Basic earnings per common share	$	0.81	$	0.87	$	1.74	$	1.73

Diluted net income per common share
Available to common stockholders:
Net income applicable to diluted earnings per share	$	16,567,000	$	17,758,000	$	35,747,000	$	34,374,000
Weighted average common shares outstanding		20,528,717		20,448,799		20,510,585		19,875,516
Dilutive potential common shares: restricted stock awarded		99,522		80,724		85,698		71,711
Diluted weighted average common shares outstanding		20,628,239		20,529,523		20,596,283		19,947,227
Diluted earnings per common share	$	0.80	$	0.86	$	1.74	$	1.72

Three months ended September 30,

Nine months ended September 30,

2022

2021

2022

2021

Basic net income per common share

Available to common stockholders:

Net income

$
17,939,000

$
18,326,000

$
52,313,000

$
34,656,000

Weighted average common shares outstanding

20,454,669

18,083,126

20,070,687

17,819,619

Basic earnings per common share

$
0.88

$
1.01

$
2.61

$
1.94

Diluted net income per common share

Available to common stockholders:

Net income applicable to diluted earnings per share

$
17,939,000

$
18,326,000

$
52,313,000

$
34,656,000

Weighted average common shares outstanding

20,454,669

18,083,126

20,070,687

17,819,619

Dilutive potential common shares: restricted stock awarded

80,546

53,020

74,748

53,020

Diluted weighted average common shares outstanding

20,535,215

18,136,146

20,145,435

17,872,639

Diluted earnings per common share

$
0.88

$
1.01

$
2.60

$
1.94

There were no shares excluded when computing diluted earnings per share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 because they were anti-dilutive.

Note 3 -- Investment Securities

The amortized cost, gross unrealized gains and losses and estimated fair values for available-for-sale and held-to-maturity securities by major security type at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 were as follows (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
September 30, 2022
										Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
June 30, 2023
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	256,478	$	—	$	(33,747	)	$	222,731	$	246,712	$	—	$	(31,558	)	$	215,154
Obligations of states and political subdivisions		360,622		35		(74,549	)		286,108		338,377		61		(56,422	)		282,016
Mortgage-backed securities: GSE residential		763,882		7		(123,495	)		640,394		713,394		1		(119,647	)		593,748
Other securities		85,948		1		(4,394	)		81,555		79,320		—		(5,905	)		73,415
Total available-for-sale	$	1,466,930	$	43	$	(236,185	)	$	1,230,788	$	1,377,803	$	62	$	(213,532	)	$	1,164,333
Held-to-maturity:
Other investments	$	2,930	$	—	$	—		$	2,930	$	2,971	$	—	$	—		$	2,971
Total held-to-maturity	$	2,930	$	—	$	—		$	2,930	$	2,971	$	—	$	—		$	2,971
December 31, 2021
December 31, 2022
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	208,598	$	80	$	(4,863	)	$	203,815	$	252,934	$	—	$	(32,407	)	$	220,527
Obligations of states and political subdivisions		383,991		12,123		(657	)		395,457		347,409		134		(59,845	)		287,698
Mortgage-backed securities: GSE residential		799,456		4,292		(12,710	)		791,038		744,636		3		(116,759	)		627,880
Other securities		30,546		671		(105	)		31,112		87,393		6		(4,519	)		82,880
Total available-for-sale	$	1,422,591	$	17,166	$	(18,335	)	$	1,421,422	$	1,432,372	$	143	$	(213,530	)	$	1,218,985
Held-to-maturity:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	5,001	$	5	$	—		$	5,006
Other investments		2,029		—		—			2,029	$	2,954	$	—	$	—		$	2,954
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	7,030	$	5	$	—		$	7,035
Total held-to-maturity										$	2,954	$	—	$	—		$	2,954

The Company also had ~~$317,000~~$409,000 and ~~$397,000~~$311,000 of equity securities, at fair value, as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The Company's held-to-maturity securities are annuities for which the risk of loss is minimal. As such, as of ~~September~~June 30, ~~2022,~~2023, the Company did not record an allowance for credit losses on its held-to-maturity securities.

Realized gains and losses resulting from sales of securities were as follows during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (in thousands):


	Three months September 30,					Nine months September 30,					Three months June 30,					Six months June 30,
	2022			2021		2022			2021		2023			2022		2023			2022
Gross gains	$	191		$	11	$	193		$	88	$	—		$	2	$	6		$	2
Gross losses		(112	)		—		(112	)		—		(6	)		—		(58	)		—

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~~June 30, ~~2022~~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			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	$	159,663		$	53,511		$	9,557		$	—		$	222,731		$	167,082		$	48,072		$	—		$	—		$	215,154
Obligations of state and political subdivisions		24,140			75,195			185,717			1,056			286,108			18,358			80,207			182,228			1,223			282,016
Mortgage-backed securities: GSE residential		3,831			90,744			544,195			1,624			640,394			2,429			7,456			24,730			559,133			593,748
Other securities		19,480			61,306			769			—			81,555			23,407			49,356			652			—			73,415
Total available-for-sale investments	$	207,114		$	280,756		$	740,238		$	2,680		$	1,230,788		$	211,276		$	185,091		$	207,610		$	560,356		$	1,164,333
Weighted average yield		1.56	%		3.17	%		1.76	%		2.88	%		2.03	%		1.64	%		2.51	%		2.04	%		1.70	%		1.87	%
Full tax-equivalent yield		1.68	%		3.44	%		1.93	%		3.40	%		2.21	%		1.67	%		2.51	%		2.06	%		1.72	%		1.89	%
Held to maturity:
Other investments	$	—		$	—		$	—		$	2,930		$	2,930		$	—		$	—		$	—		$	2,971		$	2,971
Total held-to-maturity	$	—		$	—		$	—		$	2,930		$	2,930		$	—		$	—		$	—		$	2,971		$	2,971
Weighted average yield		—	%		—	%		—	%		—	%		—	%		—	%		—	%		—	%		—	%		—	%
Full tax-equivalent yield		—	%		—	%		—	%		—	%		—	%		—	%		—	%		—	%		—	%		—	%

The weighted average yields are calculated based on the amortized cost and effective yields weighted for the scheduled maturity of each security. Tax-equivalent yields have been calculated using a ~~21%~~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~~June 30, ~~2022.~~2023.

Investment securities carried at approximately ~~$818~~$904 million and ~~$590~~$770 million at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, were pledged to secure public deposits and repurchase agreements and for other purposes as permitted or required by law.

The following table presents the aging of gross unrealized losses and fair value by investment category as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):

	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Less than 12 months					12 months or more					Total
September 30, 2022
																Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
June 30, 2023
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	89,341	$	(8,618	)	$	132,392	$	(25,129	)	$	221,733	$	(33,747	)	$	1,553	$	(18	)	$	213,600	$	(31,540	)	$	215,153	$	(31,558	)
Obligations of states and political subdivisions		235,842		(57,209	)		37,212		(17,340	)		273,054		(74,549	)		42,383		(591	)		230,437		(55,831	)		272,820		(56,422	)
Mortgage-backed securities: GSE residential		260,199		(40,477	)		379,400		(83,018	)		639,599		(123,495	)		2,862		(95	)		590,760		(119,552	)		593,622		(119,647	)
Other securities		64,075		(3,823	)		5,979		(571	)		70,054		(4,394	)		9,842		(901	)		57,824		(5,004	)		67,666		(5,905	)
Total	$	649,457	$	(110,127	)	$	554,983	$	(126,058	)	$	1,204,440	$	(236,185	)	$	56,640	$	(1,605	)	$	1,092,621	$	(211,927	)	$	1,149,261	$	(213,532	)
December 31, 2021
December 31, 2022
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	48,316	$	(1,927	)	$	139,846	$	(2,936	)	$	188,162	$	(4,863	)	$	57,007	$	(3,493	)	$	163,520	$	(28,914	)	$	220,527	$	(32,407	)
Obligations of states and political subdivisions		61,535		(657	)		—		—			61,535		(657	)		220,102		(43,221	)		45,419		(16,624	)		265,521		(59,845	)
Mortgage-backed securities: GSE residential		562,699		(11,019	)		46,504		(1,691	)		609,203		(12,710	)		165,966		(19,859	)		461,446		(96,900	)		627,412		(116,759	)
Other securities		7,976		(105	)		—		—			7,976		(105	)		64,676		(3,675	)		6,698		(844	)		71,374		(4,519	)
Total	$	680,526	$	(13,708	)	$	186,350	$	(4,627	)	$	866,876	$	(18,335	)	$	507,751	$	(70,248	)	$	677,083	$	(143,282	)	$	1,184,834	$	(213,530	)

U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies. At ~~September~~June 30, ~~2022~~2023 there were ~~sixteen~~forty-three available-for-sale securities with a fair value of ~~$132,392,000~~$213.6 million and unrealized losses of ~~$25,129,000~~$31.5 million in a continuous unrealized loss position for twelve months or more. At December 31, ~~2021,~~2022, there were ~~six~~sixteen available-for-sale securities with a fair value of ~~$139,846,000~~$163.5 million and unrealized losses of ~~$2,936,000~~$28.9 million in a continuous unrealized loss position for twelve months or more. There were 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~~June 30, ~~2022,~~2023, there were ~~thirty-six~~two hundred twenty-five obligations of states and political subdivisions with a fair value of ~~$37,212,000~~$230.4 million and unrealized losses of ~~$17,340,000~~$55.8 million in a continuous unrealized loss position for twelve months or more. At December 31, ~~2021there~~2022 there were nothirty-six obligations of states and political subdivisions with a fair value of $45.4 million and unrealized losses of $16.6 million in a continuous unrealized loss position for twelve months or more.

Mortgage-backed Securities: GSE Residential. At ~~September~~June 30, ~~2022,~~2023, there were ~~ninty-one~~two hundred fifty-one mortgage-backed securities with a fair value of ~~$379,400,000~~$590.8 million and unrealized losses of ~~$83,018,000~~$119.6 million in a continuous unrealized loss position for twelve months or more. At December 31, ~~2021,~~2022, there were ~~fifteen~~ninety-one mortgage-backed securities with a fair value of ~~$46,504,000~~$461.4 million and unrealized losses of ~~$1,691,000~~$96.9 million in a continuous unrealized loss position for twelve months or more.

Other securities. At ~~September~~June 30, ~~2022,~~2023, there were ~~five~~forty-two other securities with a fair value of ~~$5,979,000~~$57.8 million and unrealized losses of ~~$571,000~~$5.0 million in a continuous unrealized loss position for twelve months or more. At December 31, ~~2021,~~2022, there were nofive other securities with a fair value of $6.7 million and unrealized losses of $0.8 million in a continuous unrealized loss position for twelve months or more.

The Company does not believe any unrealized losses as of September 30, 2022 represents other than temporary impairment ("OTTI"). However, given the uncertainty of the financial markets, the Company may be required to recognize OTTI losses in future periods with respect to its available for sale investment securities portfolio. The amount and timing of any additional OTTI will depend on the decline in the underlying cash flows of the securities. Should the impairment of any of these securities become other-than-temporary, the cost basis of the investment will be reduced, and the resulting loss recognized in the period the other-than-temporary impairment is identified.

Note 4 – Loans and Allowance for Credit Losses

Loans are stated at amortized cost net of an allowance for credit losses. Amortized cost is the unpaid principal net of unearned premiums and discounts, and net deferred origination fees and costs. Deferred loan origination fees are reduced by loan origination costs and are 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~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 follows (in thousands):


	September 30, 2022		December 31, 2021		June 30, 2023		December 31, 2022
Construction and land development	$	142,951	$	145,156	$	151,673	$	144,387
Agricultural real estate		360,875		279,001		392,686		410,790
1-4 family residential properties		436,506		399,932		418,750		440,018
Multifamily residential properties		299,125		298,974		304,147		295,073
Commercial real estate		2,002,969		1,666,764		2,062,236		2,036,243
Loans secured by real estate		3,242,426		2,789,827		3,329,492		3,326,511
Agricultural loans		160,351		151,344		148,148		166,695
Commercial and industrial loans		1,066,197		834,061		1,096,410		1,085,004
Consumer loans		100,724		78,538		80,211		97,730
All other loans		160,441		143,738		167,590		159,499
Total gross loans		4,730,139		3,997,508		4,821,851		4,835,439
Less: loans held for sale		467		2,748		2,713		338
		4,729,672		3,994,760		4,819,138		4,835,101
Less:
Net deferred loan fees, premiums and discounts		9,849		1,985		8,435		9,227
Allowance for credit losses		58,777		54,655		58,719		59,093
Net loans	$	4,661,046	$	3,938,120	$	4,751,984	$	4,766,781

Loans expected to be sold are classified as held for sale in the consolidated financial statements and are recorded at fair value, taking into consideration future commitments to sell the loans. These loans are primarily for 1-4 family residential properties.

Accrued interest on loans, which is excluded from the amortized cost of the balances above, totaled ~~$18.8~~$23.8 million and ~~$14.7~~$23.0 million at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

Most of the Company’s business activities are with customers located near the Company's branch locations in Illinois, Missouri, and Texas. At ~~September~~June 30, ~~2022,~~2023, the Company’s loan portfolio included ~~$520.9~~$540.5 million of loans to borrowers whose businesses are directly related to agriculture. Of this amount, ~~$397.5~~$417.6 million was concentrated in corn and other grain farming. Total loans to borrowers whose businesses are directly related to agriculture ~~increased $90.1~~decreased $36.6 million from ~~$430.8~~$577.2 million at December 31, ~~2021~~2022 due to seasonal timing of cash flow requirements. Loans concentrated in corn and other grain farming ~~increased $100.1~~decreased $27.7 million from ~~$297.4~~$445.2 million at December 31, ~~2021.~~2022. The Company's underwriting practices include collateralization of loans. Any extended period of low commodity prices, drought conditions, significantly reduced yields on crops and/or reduced levels of government assistance to the agricultural industry 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 ~~$209.4~~$215.2 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 ~~$911.0~~$991.1 million ofloans to lessors of non-residential buildings, and ~~$470.4~~$473.7 million of loans to lessors of residential buildings and dwellings.

The structure of the Company’s loan approval process is based on progressively larger lending authorities granted to individual loan officers, loan committees, and ultimately the board of directors. Outstanding balances to one borrower or affiliated borrowers are limited by federal regulation and most borrowers are below regulatory thresholds. The Company can occasionally have outstanding balances to one borrower up to but not exceeding the regulatory threshold should underwriting guidelines warrant. Most of the Company’s loans are to businesses located in thegeographic market areas served by the Company’s branch bank system. Additionally, a significant portion of the collateral securing the loans in the portfolio is located within the Company’s primary geographic footprint. In general, the Company adheres to loan underwriting standards consistent with industry guidelines for all loan segments.~~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.~~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 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.~~years. Commercial loans are often accompanied by a personal guaranty of the principal owners of a business. Like commercial real estate loans, the underlying cash flow of the business is the primary consideration in the underwriting process. The financial condition of commercial borrowers is monitored at least annually with the type of financial information required determined by the size of the relationship. Measures employed by the Company for businesses with higher risk profiles include the use of government- assisted lending programs through the Small Business Administration and U.S. Department of Agriculture.

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

Residential Real Estate Loans. Residential real estate loans generally include loans for the purchase or refinance of residential real estate properties consisting of one-to-four units and home equity loans and lines of credit. The Company sells most of its long-term fixed rate residential real estate loans to secondary market investors. The Company also releases the servicing of these loans upon sale. 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-five years or less. The Company does not originate subprimemortgage loans.

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

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

Allowance for Credit Losses

The allowance for credit losses represents the Company’s best estimate of the reserve necessary to adequately account for probable losses expected over the remaining contractual life of the assets. The provision for credit losses is the charge against current earnings that is determined by the Company as the amount needed to maintain an adequate allowance for credit losses. In determining the adequacy of the allowance for credit losses, and therefore the provision to be charged to current earnings, the Company relies predominantly on a disciplined credit review and approval process that extends to the full range of the Company’s credit exposure. The review process is directed by the overall lending policy and is intended to identify, at the earliest possible stage, borrowers who might be facing financial difficulty. Factors considered by the Company in evaluating the overall adequacy of the allowance include historical net loan losses, the level and composition of nonaccrual, past due and ~~troubled debt restructurings,~~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 credit losses by evaluating large individually evaluated loans separately from non-individually evaluated 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 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 loansforwhichforeclosure isdeemedtobe probable.Aspecificallowanceisassigned whenexpectedcashflows orcollateral are less than the carrying amount of the loan. The carrying value of the loan reflects reductions from prior charge-offs.~~charge-offs.~~

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.

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 also considers specific current economic events occurring globally, in the U.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. ~~Due to actual and expected changes in economic and business conditions, the~~The qualitative ~~factor~~factors for this segment ~~was increased by 5 percentage points.~~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 ~~a slight decrease~~no change to the qualitative ~~factor~~factors for this segment.

1- 4 Family Residential Properties Loans. ~~Increasedrisk~~in~~this~~The loan segment~~includesconsumerabilityto makemortgageandrentpayments.Some~~of~~thisimpact~~ ~~wasoffset~~by~~governmentalactionssuch~~as~~stimuluspayments~~ has remained stable throughout the last several years. Both adversely classified and ~~extended unemployment benefits. First Mid Bank also offered short-term loan payment deferral to borrowers in thissegment.~~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 ~~majority of exposure to~~largest balances and the ~~hotel industry. Other impacted industries in this segment include restaurants and retail establishments.~~largest allowance for credit losses. The qualitative factors on both non-owner occupied and owner-occupied loans for this segment were increased ~~by 5 percentage points~~ 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~~volatile and ~~yields~~yield expectations have been ~~strong.~~lowered due to the lack of rain. The qualitative ~~factor~~factors of this segment ~~was decreased slightly.~~were increased due to this higher level of risk.

CommercialandIndustrialLoans.I~~ndustries within this~~ This segment ~~include retailers, restaurants, and video gaming establishments.~~includes the second largest balance of allowance for credit losses. The qualitative ~~factor~~factors for this segment was increased ~~by 5 percentage points~~ 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. This segment is anticipated to be impacted by any recession that may appear. In addition, the risk has increased for cash flow challenges for any borrower who have student loans that will soon be returned to payments. The qualitative ~~factor~~factors for this segment ~~was~~were increased ~~by 5 percentage points due to actual and expected changes~~ in ~~economic and business conditions.~~the period.

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

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

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

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

The following table presents the activity in the allowance for credit losses based on portfolio segment for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~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 September 30, 2022
																					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 June 30, 2023
Beginning balance	$	2,042	$	2,112		$	3,523	$	28,856		$	886		$	19,496	$	2,160		$	59,075	$	2,426		$	1,404		$	3,420		$	27,327		$	580	$	21,142	$	1,924		$	58,223
Provision for credit loss expense		1		(674	)		269		(796	)		(246	)		1,271		317			142		(204	)		(34	)		(235	)		385			213		414		(81	)		458
Loans charged off		—		—			45		7			—			389		392			833		14			—			16			25			276		49		200			580
Recoveries collected		100		—			19		8			38			63		165			393		—			—			78			327			7		37		169			618
Ending balance	$	2,143	$	1,438		$	3,766	$	28,061		$	678		$	20,441	$	2,250		$	58,777	$	2,208		$	1,370		$	3,247		$	28,014		$	524	$	21,544	$	1,812		$	58,719

Nine months ended September 30, 2022
Six months ended June 30, 2023
Beginning balance	$	1,743	$	1,257		$	2,330	$	26,246		$	983		$	19,241	$	2,855		$	54,655	$	2,250		$	1,433		$	3,742		$	28,157		$	585	$	20,808	$	2,118		$	59,093
Initial allowance on loans purchased with credit deterioration		272		—			3		478			—			94		16			863
Provision for credit loss expense		30		181			1,355		1,384			(250	)		1,343		(42	)		4,001		(28	)		(63	)		(541	)		(449	)		205		505		12			(359	)
Loans charged off		2		—			186		414			93			424		1,059			2,178		14			—			56			25			276		62		627			1,060
Recoveries collected		100		—			264		367			38			187		480			1,436		—			—			102			331			10		293		309			1,045
Ending balance	$	2,143	$	1,438		$	3,766	$	28,061		$	678		$	20,441	$	2,250		$	58,777	$	2,208		$	1,370		$	3,247		$	28,014		$	524	$	21,544	$	1,812		$	58,719

The following tables present the activity in the allowance for credit losses based on portfolio segment for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and for the year ended December 31, ~~2021~~2022 (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 September 30, 2021
																						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 June 30, 2022																					Three months ended June 30, 2022
Beginning balance (prior to adoption of ASC 326)	$	1,795	$	1,665		$	2,570		$	25,664		$	906		$	19,842	$	2,155	$	54,597		$	1,988	$	1,971	$	3,728		$	30,345		$	1,051		$	17,348	$	2,043		$	58,474
Provision for credit loss expense		314		(408	)		27			(52	)		(90	)		342		970		1,103			54		141		(178	)		(1,433	)		(72	)		2,117		278			907
Loans charged off		—		—			45			55			—			1,600		376		2,076			—		—		69			68			93			32		309			571
Recoveries collected		—		—			108			23			—			24		204		359			—		—		42			12			—			63		148			265
Ending balance	$	2,109	$	1,257		$	2,660		$	25,580		$	816		$	18,608	$	2,953	$	53,983		$	2,042	$	2,112	$	3,523		$	28,856		$	886		$	19,496	$	2,160		$	59,075

Nine months ended September 30, 2021
Beginning balance (prior to adoption of ASC 326)	$	1,666	$	1,084		$	2,322		$	19,660		$	1,526		$	13,485	$	2,167	$	41,910
Initial allowance on loans purchased with credit deterioration		261		44			328			646			—			795		—		2,074
Provision for credit loss expense		205		129			117			5,764			(711	)		5,950		1,225		12,679
Loans charged off		23		—			241			535			—			1,686		1,008		3,493
Recoveries collected		—		—			134			45			1			64		569		813
Ending balance	$	2,109	$	1,257		$	2,660		$	25,580		$	816		$	18,608	$	2,953	$	53,983

Twelve months ended December 31, 2021
Six months ended June 30, 2022																					Six months ended June 30, 2022
Beginning balance (prior to adoption of ASC 326)	$	1,666	$	1,084		$	2,322		$	19,660		$	1,526		$	13,485	$	2,167	$	41,910		$	1,743	$	1,257	$	2,330		$	26,246		$	983		$	19,241	$	2,855		$	54,655
Impact of adopting ASC 326		261		44			328			646			—			795		—		2,074			272		—		3			478			—			94		16			863
Provision for credit loss expense		21		129			(160	)		6,415			(544	)		7,940		1,350		15,151			29		855		1,086			2,180			(4	)		72		(359	)		3,859
Loans charged off		205		—			371			535			—			3,118		1,405		5,634			2		—		141			407			93			35		667			1,345
Recoveries collected		—		—			211			60			1			139		743		1,154			—		—		245			359			—			124		315			1,043
Ending balance	$	1,743	$	1,257		$	2,330		$	26,246		$	983		$	19,241	$	2,855	$	54,655		$	2,042	$	2,112	$	3,523		$	28,856		$	886		$	19,496	$	2,160		$	59,075

Twelve months ended December 31, 2022																					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

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 individually evaluated loans that are considered solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

The Company charges-off 1-4 family residential and consumer loans, or portions thereof, when the Company reasonably determines the amount of the loss. The Company adheres to ~~timeframes~~time 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.

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 ~~September~~June 30, ~~2022~~2023 (in thousands):


	Collateral								Allowance		Collateral								Allowance
	Real Estate		Business Assets		Other		Total		for Credit Losses		Real Estate		Business Assets		Other		Total		for Credit Losses
Construction and land development	$	457	$	—	$	—	$	457	$	230	$	431	$	—	$	—	$	431	$	201
Agricultural real estate		—		—		74		74		—		—		—		16		16		—
1-4 family residential properties		710		147		—		857		83		1,294		—		—		1,294		—
Multifamily residential properties		1,224		—		—		1,224		—		1,116		—		—		1,116		—
Commercial real estate		8,781		653		—		9,434		477		8,773		—		—		8,773		—
Loans secured by real estate		11,172		800		74		12,046		790		11,614		—		16		11,630		201
Agricultural loans		—		850		—		850		—		—		—		—		—		—
Commercial and industrial loans		314		977		—		1,291		469		118		142		—		260		48
Consumer loans		—		—		2	2			—		—		—		—		—		—
Total loans	$	11,486	$	2,627	$	76	$	14,189	$	1,259	$	11,732	$	142	$	16	$	11,890	$	249

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 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.

2322

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 ~~September~~June 30, ~~2022~~2023 (in thousands):


		Term Loans by Origination Year												Revolving					Term Loans by Origination Year												Revolving
Risk rating		2022		2021		2020		2019		2018		Prior		Loans		Total			2023		2022		2021		2020		2019		Prior		Loans		Total
September 30, 2022
June 30, 2023
Construction and land development loans	Construction and land development loans																	Construction and land development loans
Pass		$	44,523	$	41,588	$	20,108	$	22,670	$	2,042	$	11,388	$	—	$	142,319		$	22,920	$	76,473	$	19,722	$	6,004	$	15,785	$	10,216	$	—	$	151,120
Special mention			—		—		—		—		—		—		—		—			—		—		—		—		—		—		—		—
Substandard			—		—		—		14		—		468		—		482			—		—		—		—		—		454		—		454
Total		$	44,523	$	41,588	$	20,108	$	22,684	$	2,042	$	11,856	$	—	$	142,801		$	22,920	$	76,473	$	19,722	$	6,004	$	15,785	$	10,670	$	—	$	151,574
Current period gross writeoffs																			$	—	$	—	$	—	$	—	$	14	$	—	$	—	$	14
Agricultural real estate loans	Agricultural real estate loans																	Agricultural real estate loans
Pass		$	120,430	$	66,652	$	58,431	$	24,048	$	27,955	$	53,902	$	—	$	351,418		$	5,197	$	169,602	$	58,982	$	56,172	$	22,539	$	74,908	$	—	$	387,400
Special mention			1,123		—		490		1,295		273		3,195		—		6,376			—		112		—		26		1,240		2,231		—		3,609
Substandard			—		—		—		—		1,459		1,171		—		2,630			—		—		—		—		—		1,211		—		1,211
Total		$	121,553	$	66,652	$	58,921	$	25,343	$	29,687	$	58,268	$	—	$	360,424		$	5,197	$	169,714	$	58,982	$	56,198	$	23,779	$	78,350	$	—	$	392,220
Current period gross writeoffs																			$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
1-4 family residential property loans	1-4 family residential property loans																	1-4 family residential property loans
Pass		$	77,502	$	89,035	$	82,523	$	28,341	$	31,771	$	66,756	$	46,485	$	422,413		$	18,858	$	84,398	$	82,341	$	72,373	$	24,307	$	78,593	$	42,426	$	403,296
Special mention			—		233		2		39		243		1,124		129		1,770			—		184		116		—		—		3,857		—		4,157
Substandard			251		297		575		301		2,881		7,867		270		12,442			171		978		478		514		299		9,039		—		11,479
Total		$	77,753	$	89,565	$	83,100	$	28,681	$	34,895	$	75,747	$	46,884	$	436,625		$	19,029	$	85,560	$	82,935	$	72,887	$	24,606	$	91,489	$	42,426	$	418,932
Current period gross writeoffs																			$	—	$	—	$	—	$	—	$	14	$	42	$	—	$	56
Commercial real estate loans	Commercial real estate loans																	Commercial real estate loans
Pass		$	460,123	$	529,691	$	327,112	$	255,439	$	215,989	$	470,189	$	—	$	2,258,543		$	86,685	$	560,815	$	519,951	$	309,492	$	232,790	$	626,080	$	—	$	2,335,813
Special mention			2,055		1,439		1,057		1,533		970		8,604		—		15,658			—		2,016		1,123		754		660		6,498		—		11,051
Substandard			3,810		484		810		933		5,563		8,858		—		20,458			—		3,481		465		41		823		8,337		—		13,147
Total		$	465,988	$	531,614	$	328,979	$	257,905	$	222,522	$	487,651	$	—	$	2,294,659		$	86,685	$	566,312	$	521,539	$	310,287	$	234,273	$	640,915	$	—	$	2,360,011
Current period gross writeoffs																			$	—	$	—	$	—	$	—	$	25	$	—	$	—	$	25
Agricultural loans	Agricultural loans																	Agricultural loans
Pass		$	112,261	$	27,677	$	10,197	$	3,585	$	1,663	$	1,850	$	—	$	157,233		$	63,709	$	57,549	$	18,115	$	4,488	$	2,155	$	1,429	$	—	$	147,445
Special mention			2,099		26		—		62		78		109		—		2,374			6		677		—		—		36		—		—		719
Substandard			850		—		—		50		4		—		—		904			—		95		55		—		4		—		—		154
Total		$	115,210	$	27,703	$	10,197	$	3,697	$	1,745	$	1,959	$	—	$	160,511		$	63,715	$	58,321	$	18,170	$	4,488	$	2,195	$	1,429	$	—	$	148,318
Current period gross writeoffs																			$	—	$	276	$	—	$	—	$	—	$	—	$	—	$	276
Commercial and industrial loans	Commercial and industrial loans																	Commercial and industrial loans
Pass		$	403,584	$	220,179	$	183,378	$	68,370	$	70,106	$	273,643	$	—	$	1,219,260		$	99,847	$	414,595	$	217,451	$	165,209	$	58,286	$	284,514	$	—	$	1,239,902
Special mention			191		460		343		885		242		568		—		2,689			30		591		7,628		7,984		436		4,471		—		21,140
Substandard			365		551		282		37		176		658		—		2,069			—		320		297		87		7		367		—		1,078
Doubtful			—		—		—		469		—		—		—		469
Total		$	404,140	$	221,190	$	184,003	$	69,761	$	70,524	$	274,869	$	—	$	1,224,487		$	99,877	$	415,506	$	225,376	$	173,280	$	58,729	$	289,352	$	—	$	1,262,120
Current period gross writeoffs																			$	—	$	—	$	—	$	49	$	—	$	13	$	—	$	62
Consumer loans	Consumer loans																	Consumer loans
Pass		$	42,963	$	23,540	$	17,896	$	9,442	$	2,630	$	3,738	$	—	$	100,209		$	4,768	$	39,001	$	16,075	$	9,075	$	5,023	$	5,556	$	—	$	79,498
Special mention			—		52		30		29		6		—		—		117			—		11		—		—		—		—		—		11
Substandard			11		202		144		24		54		22		—		457			2		276		291		56		35		72		—		732
Total		$	42,974	$	23,794	$	18,070	$	9,495	$	2,690	$	3,760	$	—	$	100,783		$	4,770	$	39,288	$	16,366	$	9,131	$	5,058	$	5,628	$	—	$	80,241
Current period gross writeoffs																			$	—	$	57	$	83	$	1	$	9	$	477	$	—	$	627
Total loans	Total loans																	Total loans
Pass		$	1,261,386	$	998,362	$	699,645	$	411,895	$	352,156	$	881,466	$	46,485	$	4,651,395		$	301,984	$	1,402,433	$	932,637	$	622,813	$	360,885	$	1,081,296	$	42,426	$	4,744,474
Special mention			5,468		2,210		1,922		3,843		1,812		13,600		129		28,984			36		3,591		8,867		8,764		2,372		17,057		—		40,687
Substandard			5,287		1,534		1,811		1,359		10,137		19,044		270		39,442			173		5,150		1,586		698		1,168		19,480		—		28,255
Doubtful			—		—		—		469		—		—		—		469
Total		$	1,272,141	$	1,002,106	$	703,378	$	417,566	$	364,105	$	914,110	$	46,884	$	4,720,290		$	302,193	$	1,411,174	$	943,090	$	632,275	$	364,425	$	1,117,833	$	42,426	$	4,813,416
Current period gross writeoffs																			$	—	$	333	$	83	$	50	$	62	$	532	$	—	$	1,060

The following tables present the credit risk profile of the Company’s loan portfolio based on risk rating category as of December 31, ~~2021~~2022 (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

Term Loans by Origination Year

Revolving

Risk rating

2021

2020

2019

2018

2017

Prior

Loans

Total

December 31, 2021

Construction and land development loans

Pass

$
38,656

$
34,774

$
23,505

$
34,358

$
3,760

$
9,433

$
—

$
144,486

Special mention

110

—

—

—

—

—

—

110

Substandard

—

—

—

483

—

39

—

522

Total

$
38,766

$
34,774

$
23,505

$
34,841

$
3,760

$
9,472

$
—

$
145,118

Agricultural real estate loans

Pass

$
78,793

$
64,159

$
25,713

$
30,203

$
12,142

$
54,808

$
—

$
265,818

Special mention

872

259

4,028

384

69

6,087

—

11,699

Substandard

—

—

392

187

57

1,119

—

1,755

Total

$
79,665

$
64,418

$
30,133

$
30,774

$
12,268

$
62,014

$
—

$
279,272

1-4 family residential property loans

Pass

$
78,889

$
94,404

$
35,554

$
44,248

$
30,735

$
52,131

$
42,800

$
378,761

Special mention

234

—

1,934

499

2,601

1,196

41

6,505

Substandard

355

496

1,534

1,302

3,458

7,250

652

15,047

Total

$
79,478

$
94,900

$
39,022

$
46,049

$
36,794

$
60,577

$
43,493

$
400,313

Commercial real estate loans

Pass

$
568,200

$
417,334

$
299,973

$
174,448

$
150,811

$
304,585

$
—

$
1,915,351

Special mention

3,185

1,206

1,836

1,295

10,609

8,632

—

26,763

Substandard

2,007

714

6,242

1,179

4,646

8,238

—

23,026

Total

$
573,392

$
419,254

$
308,051

$
176,922

$
166,066

$
321,455

$
—

$
1,965,140

Agricultural loans

Pass

$
105,378

$
17,903

$
5,612

$
2,822

$
924

$
1,316

$
—

$
133,955

Special mention

13,725

436

2,648

150

13

64

—

17,036

Substandard

350

18

—

—

—

125

—

493

Total

$
119,453

$
18,357

$
8,260

$
2,972

$
937

$
1,505

$
—

$
151,484

Commercial and industrial loans

Pass

$
279,814

$
167,662

$
119,702

$
76,022

$
22,888

$
302,962

$
—

$
969,050

Special mention

613

399

1,463

182

477

819

—

3,953

Substandard

506

34

133

621

24

1,433

—

2,751

Total

$
280,933

$
168,095

$
121,298

$
76,825

$
23,389

$
305,214

$
—

$
975,754

Consumer loans

Pass

$
27,948

$
19,033

$
16,978

$
5,505

$
4,297

$
1,244

$
—

$
75,005

Special mention

68

54

38

9

—

—

—

169

Substandard

585

58

308

678

43

1,596

—

3,268

Total

$
28,601

$
19,145

$
17,324

$
6,192

$
4,340

$
2,840

$
—

$
78,442

Total loans

Pass

$
1,177,678

$
815,269

$
527,037

$
367,606

$
225,557

$
726,479

$
42,800

$
3,882,426

Special mention

18,807

2,354

11,947

2,519

13,769

16,798

41

66,235

Substandard

3,803

1,320

8,609

4,450

8,228

19,800

652

46,862

Total

$
1,200,288

$
818,943

$
547,593

$
374,575

$
247,554

$
763,077

$
43,493

$
3,995,523

The following table presents the Company’s loan portfolio aging analysis at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (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
September 30, 2022
															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
June 30, 2023
Construction and land development	$	340	$	—	$	449	$	789	$	142,012	$	142,801	$	—	$	59	$	—	$	450	$	509	$	151,065	$	151,574	$	—
Agricultural real estate		393		—		242		635		359,789		360,424		—		—		—		—		—		392,220		392,220		—
1-4 family residential properties		2,808		537		819		4,164		432,461		436,625		—		2,208		309		982		3,499		415,433		418,932		—
Multifamily residential properties		—		—		546		546		297,775		298,321		—		—		—		550		550		302,932		303,482		—
Commercial real estate		1,172		198		4,779		6,149		1,990,189		1,996,338		—		127		1,048		2,832		4,007		2,052,522		2,056,529		—
Loans secured by real estate		4,713		735		6,835		12,283		3,222,226		3,234,509		—		2,394		1,357		4,814		8,565		3,314,172		3,322,737		—
Agricultural loans		82		—		881		963		159,548		160,511		—		—		—		150		150		148,168		148,318		—
Commercial and industrial loans		300		642		1,221		2,163		1,061,870		1,064,033		—		66		—		890		956		1,093,566		1,094,522		—
Consumer loans		263		215		319		797		99,986		100,783		—		455		144		200		799		79,442		80,241		—
All other loans		—		—		—		—		160,454		160,454		—		—		—		—		—		167,598		167,598		—
Total loans	$	5,358	$	1,592	$	9,256	$	16,206	$	4,704,084	$	4,720,290	$	—	$	2,915	$	1,501	$	6,054	$	10,470	$	4,802,946	$	4,813,416	$	—
December 31, 2021
December 31, 2022
Construction and land development	$	159	$	199	$	203	$	561	$	144,557	$	145,118	$	—	$	20	$	14	$	449	$	483	$	143,781	$	144,264	$	—
Agricultural real estate		—		222		1		223		279,049		279,272		—		20		6		1		27		410,300		410,327		—
1-4 family residential properties		2,532		914		2,012		5,458		394,855		400,313		—		1,706		1,092		896		3,694		436,486		440,180		—
Multifamily residential properties		—		—		1,676		1,676		297,266		298,942		—		—		—		548		548		293,798		294,346		—
Commercial real estate		8,930		640		2,484		12,054		1,654,144		1,666,198		—		494		205		3,654		4,353		2,025,658		2,030,011		—
Loans secured by real estate		11,621		1,975		6,376		19,972		2,769,871		2,789,843		—		2,240		1,317		5,548		9,105		3,310,023		3,319,128		—
Agricultural loans		—		10		588		598		150,886		151,484		—		—		53		29		82		166,756		166,838		—
Commercial and industrial loans		381		302		1,156		1,839		830,169		832,008		—		716		24		854		1,594		1,081,366		1,082,960		—
Consumer loans		388		47		118		553		77,889		78,442		—		326		195		278		799		96,976		97,775		—
All other loans		1,854		—		—		1,854		141,892		143,746		—		—		—		—		—		159,511		159,511		—
Total loans	$	14,244	$	2,334	$	8,238	$	24,816	$	3,970,707	$	3,995,523	$	—	$	3,282	$	1,589	$	6,709	$	11,580	$	4,814,632	$	4,826,212	$	—

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 restructurings~~restructuring 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.~~status.~~

The Company’s policy is to discontinue the accrual of interest income on all loans for which principal or interest is ninety days past due. The accrual of interest is discontinued earlier when, in the opinion of management, there is reasonable doubt as to the timely collection of interest or principal. Once interest accruals are discontinued, accrued but uncollected interest is charged against current year income. Subsequent receipts on non-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Interest on loans determined to be ~~troubled debt restructurings~~modified 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 amount of interest income recognized by the Company within the periods stated above was due to loans modified in ~~troubled debt restructurings~~restructuring that remain on accrual status.

Non-Accrual Loans

The following table presents the amortized cost basis of loans on nonaccrual status and of nonaccrual loans individually evaluated for which no allowance was recorded as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands). There were no loans past due over eighty-nine days that were still accruing.


	September 30, 2022				December 31, 2021				June 30, 2023				December 31, 2022
	Nonaccrual with no Allowance for		Total		Nonaccrual with no Allowance for		Total		Nonaccrual with no Allowance for		Total		Nonaccrual with no Allowance for		Total
	Credit Loss		Nonaccrual		Credit Loss		Nonaccrual		Credit Loss		Nonaccrual		Credit Loss		Nonaccrual
Construction and land development	$	14	$	14	$	25	$	25	$	—	$	—	$	14	$	14
Agricultural real estate		1,347		1,347		237		336		1,237		1,237		1,258		1,258
1-4 family residential properties		4,037		4,222		5,252		5,252		4,397		4,669		4,532		4,943
Multifamily residential properties		1,238		1,238		1,982		1,982		1,124		1,124		672		672
Commercial real estate		7,969		7,970		7,554		7,920		9,018		9,018		7,640		7,640
Loans secured by real estate		14,605		14,791		15,050		15,515		15,776		16,048		14,116		14,527
Agricultural loans		856		856		560		560		152		152		57		57
Commercial and industrial loans		1,403		1,872		936		1,851		698		816		1,098		1,098
Consumer loans		347		347		179		179		282		282		274		274
All other loans		—		—		—		—		—		—		—		—
Total loans	$	17,211	$	17,866	$	16,725	$	18,105	$	16,908	$	17,298	$	15,545	$	15,956

Interest income that would have been recorded under the original terms of such nonaccrual loans totaled ~~$168,000~~$122,000 and ~~$407,000~~$94,000 for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, ~~and 2021,~~ respectively.

~~Troubled DebtRestructuring~~

The balance of troubled debt restructurings ("TDRs") at September 30, 2022 and December 31, 2021 was $4.7 million and $5.8 million, respectively. There was $497,000 and $765,000 in specific reserves established with respectLoan Modification Disclosures Pursuant to these loans as of September 30, 2022 and December 31, 2021, respectively. As troubled debt restructurings, these loans are included in nonperforming loans. 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.ASU 2022-02

The following table ~~presents~~shows the ~~Company’s recorded balance~~amortized cost of ~~troubled debt restructurings~~loans at ~~September~~June 30, ~~2022~~2023 that were both experiencing financial difficulty and ~~December 31, 2021 (in thousands).~~modified segregated by portfolio segment and type of modification. The percentage of the amortized cost of loans that were modified to borrowers in financial distress as compared to outstanding loans is also presented below.

Troubled debt restructurings:	September 30, 2022		December 31, 2021
Agricultural real estate	$	353	$	245
1-4 family residential properties		1,056		1,353
Commercial real estate		2,956		3,355
Loans secured by real estate		4,365		4,953
Agricultural loans		0		228
Commercial and industrial loans		321		479
Consumer loans		40		109
All other loans		—		23
Total	$	4,726	$	5,792
Performing troubled debt restructurings:

													Total
							Payment		Term		Interest		Class of
					Principal		Delay		Extension		Rate		Financing
					Forgiveness		Investment		Modifications		Reduction		Receivable
June 30, 2023
Agricultural real estate	$	233	$	245	$	—	$	337	$	—	$	—		0.01	%
1-4 family residential properties		650		882		—		60		868		—		0.02	%
Commercial real estate		1,957		2,552		—		797		117		—		0.02	%
Loans secured by real estate		2,840		3,679		—		1,194		985		—		0.05	%
Commercial and industrial loans		68		179		—		233		286		—		0.01	%
Consumer loans		38		50		—		8		43		—		—	%
All other loans		—		23
Total	$	2,946	$	3,931	$	—	$	1,435	$	1,314	$	—		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 ~~presents~~shows the performance of such loans that have been modified ~~as TDRs~~in the last twelve months ended June 30, 2023.


	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due
June 30, 2023
Consumer loans	$	—	$	17	$	—	$	17
Total loans	$	—	$	17	$	—	$	17

The following table shows the financial effect of loan modifications during the ~~nine~~current quarter to borrowers experiencing financial difficulty for the three months ended ~~September~~June 30, ~~2022, as a result of various modified loan factors (in thousands). The change in the recorded investment from pre-modification to post- modification was not material.~~2023.

September 30, 2022

September 30, 2021

Number of

Recorded

Type of

Number of

Recorded

Type of

Modifications

Investment

Modifications

Modifications

Investment

Modifications
Construction and land development

—

$
—

1

$
492

(c)
Agricultural real estate

2

120

(b)

1

250

(b)
1-4 family residential properties

2

$
63

(b)(c)

2

323

(b)(c)
Commercial real estate

3

197

(b)

1

681

(b)
Loans secured by real estate

7

380

5

1,746

Agricultural loans

—

—

1

156

(b)
Commercial and industrial loans

1

35

(b)

6

287

(b)
Consumer loans

—

—

4

54

(b)
Other Loans

—

—

1

24

(b)
Total

8

$
415

17

$
2,267


	Weighted Average			Weighted Average
	Interest Rate			Term Extension
	Reduction			(in months)
Commercial and industrial loans		4.75	%		5.13
Consumer loans		—	%		3.00
		4.75	%		4.93

~~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~~

A loan is considered to be in payment default once it is 90 days past due under the modified terms. There were ~~two~~no loans modified ~~as troubled debt restructurings~~ during the prior twelve months that experienced defaults for ~~nine~~six months ended ~~September~~June 30, 2023.

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

There was one loan and lease modifications classified as a TDR during the three months ended June 30, 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 ~~was~~were ~~one~~no ~~loan~~modifications during the three months ended June 30, 2022 that resulted in an interest rate below market rate.

There were two loans modified as ~~troubled~~trouble debt restructuring during the prior twelve months that experienced defaults for the three months ended June 30, 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, ~~2021.~~2022.

The balance of real estate owned includes $4,322,000 and $4,984,000 of foreclosed real estate properties recorded as a result of obtaining physical possession of the property at September 30, 2022 and December 31, 2021, respectively. The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure procedures are in process was $532,000 and $411,000 at September 30, 2022 and December 31, 2021, respectively.


	December 31, 2022
Performing TDRs	$	3,214
Nonperforming TDRs		1,850
Total TDRs	$	5,064

Purchased Credit Deteriorated (PCD) Loans

The Company has acquired loans, for which there was, at 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

2022

2021

Delta
Acquisition

LINCO
Acquisition

Purchase price of purchase credit deteriorated loans at acquisition

$
18,796

$
64,647

Allowance for credit losses at acquisition

(863
)

(2,074
)
Non-credit discount/(premium) at acquisition

(523
)

(187
)
Fair value of purchased credit deteriorated loans at acquisition

$
17,410

$
62,386

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~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):


	June 30, 2023				December 31, 2022
	Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization
Goodwill not subject to amortization (effective 1/1/02)	$	150,123	$	3,760	$	144,172	$	3,760
Intangibles from branch acquisition		3,015		3,015		3,015		3,015
Core deposit intangibles		45,355		30,491		45,355		28,432
Other intangibles		26,552		9,463		20,782		8,551
	$	225,045	$	46,729	$	213,324	$	43,758

During the quarter ended June 30, 2023, goodwill of $6 million was recorded for the acquisition of the stock of Purdum, Gray, Ingledue, Beck, Inc., in connection with its insurance business. First Mid Insurance was assigned all this goodwill. The followingprovides a reconciliation of the purchase price paid for Purdum, Gray, Ingledue, Beck, Inc. and the amount of goodwill recorded (in thousands):

September 30, 2022

December 31, 2021

Gross Carrying
Value

Accumulated
Amortization

Gross Carrying
Value

Accumulated
Amortization

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

$
143,854

$
3,760

$
115,613

$
3,760

Intangibles from branch acquisition

3,015

3,015

3,015

3,015

Core deposit intangibles

45,355

27,359

39,435

24,085

Other intangibles

20,561

8,104

20,561

6,808

$
212,785

$
42,238

$
178,624

$
37,668


Unallocated purchase price				$	10,145
Less purchase accounting adjustments:
Insurance Company intangible	$	5,770
Other liabilities		(1,576	)
					4,194
				$	5,951

During the first quarter of 2022, goodwill of ~~$28.6~~$28.6 million was provisionally recorded for the acquisition and merger of Delta Bancshares Company. This goodwill was subsequently adjusted to ~~$28.2~~$28.2 million to reflect proper tax treatment of the Delta assets and liabilities. All this goodwill was assigned to the banking unit of the Company.

During the second quarter of 2021, goodwill of $1.4 million was recorded for the acquisition of certain assets used by BBM & Associates Inc., in connection with its trucking insurance business. All this goodwill was assigned to First Mid Insurance.

Goodwill of $8.9 million was provisionally recorded for the acquisition and merger of LINCO Bancshares, Inc. (“LINCO”) during the first quarter of 2021. All this goodwill was assigned to the banking units of the Company. This goodwill was subsequently adjusted to $5.4 million to reflect adjustments made to finalize the purchase accounting.

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


Unallocated purchase price				$	29,791				$	29,791
Less purchase accounting adjustments:
Fair value of securities	$	(2,836	)			$	(2,836	)
Fair value of loans, net		(3,399	)				(3,399	)
Fair value of premises and equipment		3,508					3,508
Fair value of time deposits		(1,759	)				(1,759	)
Fair value of FHLB advances		(75	)				(75	)
Core deposit intangible		5,920					5,920
Other assets		(253	)				(570	)
Other liabilities		444					444
					1,550					1,233
				$	28,241				$	28,558

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

Unallocated purchase price

$
12,248

Less purchase accounting adjustments:

Fair value of securities
$
264

Fair value of loans, net

(2,818
)

Fair value of other real estate owned

915

Fair value of premises and equipment

6,360

Fair value of time deposits

(2,081
)

Fair value of FHLB advances

(975
)

Core deposit intangible

2,025

Other assets

3,293

Other liabilities

(184
)

6,799

$
5,449

The Company has mortgage servicing rights acquired in previous acquisitions. The following table summarizes the activity pertaining to mortgage servicing rights included in intangible assets as of ~~September~~June 30, ~~2022, September~~2023, June 30, ~~2021~~2022 and December 31, ~~2021~~2022 (in thousands):


	June 30, 2023			June 30, 2022			December 31, 2022
Beginning balance	$	331		$	420		$	420
Adjustment to valuation reserve		—			107			108
Mortgage servicing rights amortized		(28	)		(149	)		(200	)
Interest only strip		(4	)		11			3
Ending balance	$	299		$	389		$	331

September 30, 2022

September 30, 2021

December 31, 2021

Beginning balance

$
420

$
516

$
516

Adjustment to valuation reserve

108

474

544

Mortgage servicing rights amortized

(184
)

(528
)

(629
)
Interest only strip

6

(7
)

(11
)
Ending balance

$
350

$
455

$
420

Total amortization expense for ~~nine~~three and six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 was as follows (in thousands):


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Core deposit intangibles	$	1,010	$	1,153	$	2,059	$	2,142
Customer list intangibles		456		432		912		864
Mortgage servicing rights		11		48		28		149
	$	1,477	$	1,633	$	2,999	$	3,155

Three months ended September 30,

Nine months ended September 30,

2022

2021

2022

2021

Core deposit intangibles

$
1,131

$
809

$
3,273

$
2,247

Customer list intangibles

432

432

1,296

1,154

Mortgage servicing rights

35

173

184

528

$
1,598

$
1,414

$
4,753

$
3,929

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 01/01/22 - 09/30/22	$	4,753
For period 01/01/23 - 06/30/23			$	2,999
Estimated amortization expense:
For period 10/01/22 - 12/31/22		1,521
For year ended 12/31/23		5,782
For period 07/01/23 - 12/31/23				6,095
For year ended 12/31/24		5,274		5,860
For year ended 12/31/25		4,724		5,225
For year ended 12/31/26		3,835		4,324
For year ended 12/31/27				3,737

In accordance with the provisions of SFAS No. 142, “~~Goodwill~~“Goodwill and Other Intangible Assets,,” codified within ASC 350, the Company performed testing of goodwill for impairment as of ~~September 30, 2022~~May 31, 2023 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 ~~$220.7~~$209.2 million at ~~September~~June 30, ~~2022, increase~~2023, an decrease of ~~$74.4~~$12.2 million from ~~$146.3~~$221.4 million at December 31, ~~2021. The increase during the first nine months of 2022 was primarily due to changes in business cash flow needs.~~2022. All the transactions have overnight maturities with a weighted average rate of ~~1.13%~~3.05%.

The right of setoff for a repurchase agreement resembles a secured borrowing, whereby the collateral pledged by the Company would be used to settle the fair value of the repurchase agreement should the Company be in default (e.g., declare bankruptcy), the Company could cancel the repurchase agreement (i.e., cease payment of principal and interest), and attempt collection on the amount of collateral value in excess of the repurchase agreement fair value. The collateral is held by a third-party financial institution in the counterparty's custodial account. The counterparty has the right to sell or repledge the investment securities. For government entity repurchase agreements, the collateral is held by the Company in a segregated custodial account under a tri-party agreement. The Company is required by the counterparty to maintain adequate collateral levels. In the event the collateral fair value falls below stipulated levels, the Company will pledge additional securities. The Company closely monitors collateral levels to ensure adequate levels are maintained, while mitigating the potential of over-collateralization in the event of counterparty default.

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


	June 30, 2023		December 31, 2022
US Treasury securities and obligations of U.S. government corporations and agencies	$	17,118	$	47,775
Mortgage-backed securities: GSE: residential		192,052		173,639
Total	$	209,170	$	221,414

September 30, 2022

December 31, 2021

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

$
56,030

$
53,782

Mortgage-backed securities: GSE: residential

164,677

92,486

Total

$
220,707

$
146,268

FHLB borrowings, ~~before net premiums of $374,000,~~ were ~~$175.9~~$449.7 million and ~~$86~~$464.7 million at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. At ~~September~~June 30, ~~2022~~2023 the advances were as follows:


Advance		Term (in years)	Interest Rate	Maturity Date
$	25,000,000	overnight	4.86%	July 1, 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
	25,000,000	3.0	4.40%	June 15, 2026
	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
	25,000,000	5.0	3.67%	June 15, 2028
	25,000,000	5.0	3.71%	June 29, 2028
	25,000,000	5.0	3.82%	June 29, 2028
	25,000,000	5.0	3.95%	June 29, 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

Advance

Term (in years)

Interest Rate

Maturity Date

25,000,000

6 Months

2.65%

December 23, 2022

25,000,000

6 Months

2.74%

December 30, 2022

5,000,000

8.0

2.40%

January 9, 2023

35,000,000

6 Months

4.22%

March 31, 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

10,000,000

5.0

1.45%

December 31, 2024

5,000,000

5.0

0.91%

March 10, 2025

5,857,785

10.0

2.64%

December 23, 2025

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

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 orliabilities.

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

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

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

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

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

3230

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~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):


	Fair Value Measurements Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
June 30, 2023
Available-for-sale securities:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	215,154	$	—	$	215,154	$	—
Obligations of states and political subdivisions		282,016		—		282,016		—
Mortgage-backed securities		593,748		—		593,748		—
Other securities		73,415		—		67,655		5,760
Total available-for-sale securities		1,164,333		—		1,158,573		5,760
Equity securities		409		409		—		—
Derivative assets: interest rate swaps		3,913		—		3,913		—
Total assets	$	1,168,655	$	409	$	1,162,486	$	5,760

Derivative liabilities: interest rate swaps	$	2,723	$	—	$	2,723	$	—
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	$	—

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)

September 30, 2022

Available-for-sale securities:

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

$
222,731

$
—

$
222,731

$
—

Obligations of states and political subdivisions

286,108

—

286,108

—

Mortgage-backed securities

640,394

—

640,394

—

Other securities

81,555

—

81,555

—

Total available-for-sale securities

1,230,788

—

1,230,788

—

Equity securities

317

317

—

—

Derivative assets: interest rate swaps

4,501

—

4,501

—

Total assets

$
1,235,606

$
317

$
1,235,289

$
—

Derivative liabilities: interest rate swaps

$
3,296

$
—

$
3,296

$
—

December 31, 2021

Available-for-sale securities:

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

$
203,815

$
—

$
203,815

$
—

Obligations of states and political subdivisions

395,457

—

395,358

99

Mortgage-backed securities

791,038

—

791,038

—

Other securities

31,112

—

31,112

—

Total available-for-sale securities

1,421,422

—

1,421,323

99

Equity securities

397

397

—

—

Derivative assets: interest rate swaps

809

—

809

—

Total assets

$
1,422,628

$
397

$
1,422,132

$
99

Derivative liabilities: interest rate swaps

$
1,476

$
—

$
1,476

$
—

The change in fair value of assets measured on a recurring basis using significant unobservable inputs (Level 3) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 is summarized as follows (in thousands):

	Obligation of State and Political Subdivisions
	Three months ended				Nine months ended						Three months ended June 30, 2023								Six months ended June 30, 2023
	September 30, 2022		September 30, 2021		September 30, 2022			September 30, 2021			Obligation of State and Political Subdivisions		Other			Total			Obligation of State and Political Subdivisions			Other			Total
Beginning balance	$	—	$	615	$	99		$	794		$	—	$	10,010		$	10,010		$	—		$	10,000		$	10,000
Transfers into Level 3		—		—		—			—			—		—			—			—			10			10
Transfers out of Level 3		—		—		—			—			—		(4,250	)		(4,250	)		—			(4,250	)		(4,250	)
Total gains or losses:
Included in net income		—		1		—			3			—		—			—			—			—			—
Included in other comprehensive income (loss)		—		—		—			—			—		—			—			—			—			—
Purchases, issuances, sales and settlements:
Purchases		—		—		—			—			—		—			—			—			—			—
Issuances		—		—		—			—			—		—			—			—			—			—
Sales		—		—		—			—			—		—			—			—			—			—
Settlements		—		—		(99	)		(181	)		—		—			—			—			—			—
Ending balance	$	—	$	616	$	—		$	616		$	—	$	5,760		$	5,760		$	—		$	5,760		$	5,760
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 June 30, 2022								Six months ended June 30, 2022
											Obligation of State and Political Subdivisions		Other			Total			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											$	—	$	—		$	—		$	—		$	—		$	—

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.

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. Individually 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 individually 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~~June 30, ~~2022~~2023 was ~~$3,937,000~~$1.4 million and a fair value of ~~$2,678,000~~$1.1 million resulting in specific loss exposures of ~~$1,259,000.~~$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 credit 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 credit 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~~June 30, ~~2022~~2023 was ~~$4,322,000.~~$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 ~~$213,000~~$14,000.

Mortgage Servicing Rights. As of ~~September~~June 30, ~~2022,~~2023, mortgage servicing rights had a carrying value of ~~$350,000~~$0.3 million and a fair value of ~~$599,000~~$0.6 million resulting in a valuation reserve of ~~$0.~~zero. 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~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):


	Fair Value Measurements Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
June 30, 2023
Collateral dependent loans	$	1,106	$	—	$	—	$	1,106
Foreclosed assets held for sale		14		—		—		14
December 31, 2022
Collateral dependent loans	$	2,548	$	—	$	—	$	2,548
Foreclosed assets held for sale		—		—		—		—

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)

September 30, 2022

Collateral dependent loans

$
2,678

$
—

$
—

$
2,678

Foreclosed assets held for sale

213

—

—

213

Mortgage servicing rights

599

—

—

599

December 31, 2021

Collateral dependent loans

$
6,750

$
—

$
—

$
6,750

Foreclosed assets held for sale

2,068

—

—

2,068

Mortgage servicing rights

420

—

—

420

Sensitivity of Significant Unobservable Inputs

The following table presents quantitative information about unobservable inputs used in Level 3 fair value measurements other than goodwill at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021.~~2022.

September 30, 2022	Fair Value		Valuation Technique	Unobservable Inputs	Range	Weighted Average

June 30, 2023								Fair Value		Valuation Technique	Unobservable Inputs	Range	Weighted Average
Collateral dependent loans	$	2,678	Third party valuations	Discount to reflect realizable value	0% - 40%	20%		$	1,106	Third party valuations	Discount to reflect realizable value	0% - 40%	20%
Foreclosed assets held for sale		213	Third party valuations	Discount to reflect realizable value less estimated selling costs	0% - 40%	35%			14	Third party valuations	Discount to reflect realizable value less estimated selling costs	0% - 40%	35%
Mortgage servicing rights		599	Third party valuations	PSA standard prepayment model rate	131 - 438		142

December 31, 2021

Fair Value

Valuation
Technique

Unobservable Inputs

Range

Weighted Average

Collateral dependent loans

$
6,750

Third party
valuations

Discount to reflect realizable value

0% - 40%

20%

Foreclosed assets held for sale

2,068

Third party
valuations

Discount to reflect realizable value less estimated selling costs

0% - 40%

35%

Mortgage servicing rights

420

Third party
valuations

PSA standard prepayment model rate

205 - 513

273

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%

The following tables present estimated fair values of the Company’s financial instruments at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 in accordance with ASC 825 (in thousands):


	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
June 30, 2023
Financial assets
Cash and due from banks	$	166,093	$	166,093	$	166,093	$	—	$	—
Federal funds sold		8,160		8,160		8,160		—		—
Certificates of deposit investments		1,715		1,715		—		1,715		—
Available-for-sale securities		1,164,333		1,164,333		—		1,158,573		5,760
Held-to-maturity securities		2,971		2,971		2,971		—		—
Equity securities		409		409		409		—		—
Loans held for sale		2,713		2,713		—		2,713		—
Loans net of allowance for credit losses		4,751,984		4,458,811		—		—		4,458,811
Interest receivable		28,980		28,980		—		28,980		—
Federal Reserve Bank stock		17,050		17,050		—		17,050		—
Federal Home Loan Bank stock		14,090		14,090		—		14,090		—
Financial liabilities
Deposits	$	5,219,585	$	5,107,724	$	—	$	4,174,594	$	933,130
Securities sold under agreements to repurchase		209,170		209,207		—		209,207		—
Interest payable		4,344		4,344		—		4,344		—
Federal Home Loan Bank borrowings		449,979		444,519		—		444,519		—
Subordinated debt, net		94,632		87,023		—		87,023		—
Junior subordinated debentures, net		19,448		17,033		—		17,033		—

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, 2022

Financial assets

Cash and due from banks

$
153,559

$
153,559

$
153,559

$
—

$
—

Federal funds sold

7,395

7,395

7,395

—

—

Certificates of deposit investments

1,470

1,470

—

1,470

—

Available-for-sale securities

1,230,788

1,230,788

—

1,230,788

—

Held-to-maturity securities

2,930

2,930

2,930

—

—

Equity securities

317

317

317

—

—

Loans held for sale

467

467

—

467

—

Loans net of allowance for credit losses

4,661,046

4,459,663

—

—

4,459,663

Interest receivable

25,975

25,975

—

25,975

—

Federal Reserve Bank stock

17,050

17,050

—

17,050

—

Federal Home Loan Bank stock

5,843

5,843

—

5,843

—

Financial liabilities

Deposits

$
5,483,198

$
5,483,500

$
—

$
4,799,644

$
683,856

Other borrowings

5,000

5,000

5,000

—

—

Securities sold under agreements to repurchase

220,707

220,538

—

220,538

—

Interest payable

3,007

3,007

—

3,007

—

Federal Home Loan Bank borrowings

176,232

171,008

—

171,008

—

Subordinated debt, net

94,515

87,977

—

87,977

Junior subordinated debentures, net

19,322

17,134

—

17,134

—

December 31, 2021

Financial assets

Cash and due from banks

$
167,242

$
167,242

$
167,242

$
—

$
—

Federal funds sold

1,360

1,360

1,360

—

—

Certificates of deposit investments

2,450

2,450

—

2,450

—

Available-for-sale securities

1,421,422

1,421,422

—

1,421,323

99

Held-to-maturity securities

7,030

7,034

2,029

5,005

—

Equity securities

397

397

397

—

—

Loans held for sale

2,748

2,748

—

2,748

—

Loans net of allowance for credit losses

3,938,120

3,889,870

—

—

3,889,870

Interest receivable

19,868

19,868

—

19,868

—

Federal Reserve Bank stock

13,845

13,845

—

13,845

—

Federal Home Loan Bank stock

6,484

6,484

—

6,484

—

Financial liabilities

Deposits

$
4,956,486

$
4,956,738

$
—

$
4,394,434

$
562,304

Securities sold under agreements to repurchase

146,268

146,274

—

146,274

—

Interest payable

1,346

1,346

—

1,346

—

Federal Home Loan Bank borrowings

86,446

86,248

—

86,248

—

Subordinated debt, net

94,400

94,400

—

94,400

—

Junior subordinated debentures, net

19,195

15,012

—

15,012

—

Note 8 – Business Combinations

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%~~100% of the issued and outstanding shares of Delta pursuant to a business combination whereby Delta merged with and into Delta Merger Sub, whereupon the separate corporate existence of Delta ceased and Delta 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 Delta Merger Agreement, at the effective time of the Delta Merger, each share of common stock, par value ~~$10.00~~$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~~

$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~~$15.15 million in cash and 2,292,270 shares of Company common 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.

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

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

28,227

28,241

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

(970
)

8,091

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

The Company has recognized approximately ~~$2.4~~$2.6 million, pre-tax, of acquisition costs for the Delta Merger. Of this amount, ~~$2.1~~$2.1 million was recognized during 2022. These costs are included in salaries and benefits, legal and professional and other expense. Of the ~~$7.9~~$7.9 million adjustment to loans, ~~$8.2~~$8.2 million is being accreted to interest income over the remaining term of the loans. The remaining ~~$300,000~~$300,000 was the elimination of deferred fees and unearned discounts previously recorded by Jefferson Bank. The Company also recorded approximately ~~$863,000~~$863,000 directly to the allowance for credit losses for loans identified as PCD. Of the ~~$426~~$426 million of loans acquired, approximately ~~$18.8~~$18.8 million was identified as PCD.

The differences between fair value and acquired value of the assumed time deposits of ~~$1.8~~$1.8 million and the assumed FHLB advances of ~~$75,000,~~$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 ~~$5.9~~$5.9 million, is being amortized on an accelerated basis over its estimated life of 10 years.

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


	Six months ended
	June 30, 2022

Net interest income	$	93,267
Provision for loan losses		3,859
Non-interest income		39,801
Non-interest expense		84,141
Income before taxes		45,068
Income tax expense		10,062
Net income	$	35,006

Earnings per share
Basic	$	1.76
Diluted		1.75

Basic weighted average shares o/s		19,875,516
Diluted weighted average shares o/s		19,947,227

Three months ended September 30, 2022

Three months ended September 30, 2021

Nine months ended September 30, 2022

Nine months ended September 30, 2021

Net interest income

$
48,257

$
51,270

$
141,524

$
142,082

Provision for loan losses

142

1,253

4,001

16,979

Non-interest income

16,791

16,595

56,592

53,139

Non-interest expense

41,549

39,408

125,690

129,253

Income before taxes

23,357

27,204

68,425

48,989

Income tax expense

5,418

6,767

15,480

11,138

Net income

$
17,939

$
20,437

$
52,945

$
37,851

Earnings per share

Basic

$
0.88

$
1.00

$
2.64

$
1.88

Diluted

0.88

1.00

2.63

1.88

Basic weighted average shares o/s

20,454,669

20,375,396

20,070,687

20,111,889

Diluted weighted average shares o/s

20,535,215

20,428,416

20,145,435

20,164,909

On September 25, 2020, the Company and Eval Sub Inc., a newly formed Illinois corporation and wholly-owned subsidiary of the Company ("Eval Merger Sub"), entered into an Agreement and Plan of Merger (the "LINCO Merger Agreement") with LINCO Bancshares, Inc., a Missouri corporation ("LINCO"), and the sellers as defined therein, pursuant to which, among other things, the Company agreed to acquire 100% of the issued and outstanding shares of LINCO pursuant to a business combination whereby Eval Merger Sub merged with and into LINCO, whereupon the separate corporate existence of Merger Sub ceased and LINCO continued as the surviving company and a wholly-owned subsidiary of the Company (the "LINCO Merger"). The LINCO Merger closed on February 22, 2021.

Subject to the terms and conditions of the LINCO Merger Agreement, at the effective time of the LINCO Merger, each share of common stock, par value $1.00 per share, of LINCO issued and outstanding immediately prior to the effective time of the LINCO Merger (other than shares held in treasury by LINCO) was converted into and become the right to receive, cash or 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 LINCO Merger was $103.5 million in cash and 1,262,246 shares of the Company’s common stock. In addition, immediately prior to the closing of the proposed merger, LINCO paid a special dividend to its shareholders in the aggregate amount of $13 million.

~~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 as of the date of acquisition. Fair values are subject to refinement for up to one year after the closing date of February 22, 2021 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 $5.4 million was recorded for the acquisition. Goodwill recorded in the transaction, which reflects the synergies and economies of scale expected from combining operations and the enhanced revenue opportunities from the Company’s service capabilities, is not tax deductible, and was all assigned to the banking segment of the Company.

Acquired

Fair Value

As Recorded by

(In thousands)

Book Value

Adjustments

Providence Bank

Assets

Cash and due from banks

$
130,561

$
—

$
130,561

Investment securities

119,234

264

119,498

Loans

838,377

(9,401
)

828,976

Allowance for credit losses

(8,656
)

6,583

(2,073
)
Other real estate owned

8,435

915

9,350

Premises and equipment

23,440

6,360

29,800

Goodwill

20,503

(15,054
)

5,449

Core deposit intangible

123

2,025

2,148

Right of use asset

—

794

794

Other assets

43,697

2,499

46,196

Total assets acquired

$
1,175,714

$
(5,015
)

$
1,170,699

Liabilities

Deposits

$
988,329

$
2,081

$
990,410

Securities sold under agreements to repurchase

—

—

—

FHLB advances

26,941

975

27,916

Other borrowings

—

—

—

Lease liability

—

794

794

Other liabilities

4,498

(610
)

3,888

Total liabilities assumed

1,019,768

3,240

1,023,008

Net assets acquired

$
155,946

$
(8,255
)

$
147,691

Consideration paid

Cash

$
103,500

Common stock

44,191

$
147,691

The Company has recognized approximately $9 million, pre-tax, of acquisition costs for the LINCO acquisition. Of this amount, $8.5 million was recognized during the first nine months of 2021. These costs are included in salaries and benefits, legal and professional and other expense. Of the $9.4 million adjustment to loans, $11.1 million is being accreted to interest income over the remaining term of the loans. The remaining $1.7 million was the elimination of deferred fees and unearned discounts previously recorded by Providence Bank. The Company also recorded approximately $2 million directly to the allowance for credit losses for loans identified as PCD. Of the $838 million of loans acquired, approximately $64.6 million was identified as PCD.

The differences between fair value and acquired value of the assumed time deposits of $2.1 million and the assumed FHLB advances of $975,000, are being amortized to interest expense over the remaining life of the liabilities. The core deposit intangible asset, with a fair value of $2.1 million, is being amortized on an accelerated basis over its estimated life of 10 years.

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

Nine months ended September 30, 2021

Net interest income

$
131,713

Provision for loan losses

12,879

Non-interest income

53,504

Non-interest expense

124,133

Income before taxes

48,205

Income tax expense

11,052

Net income

$
37,153

Earnings per share

Basic

$
2.08

Diluted

2.08

Basic weighted average shares o/s

17,819,619

Diluted weighted average shares o/s

17,872,639

Note 9 -- Leases

Effective January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842). As of ~~September~~June 30, ~~2022,~~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:

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

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

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

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

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

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

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

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

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


	September 30, 2022			September 30, 2021			December 31, 2021			June 30, 2023			June 30, 2022			December 31, 2022
Operating lease right-of-use assets	$	15,194		$	16,120		$	15,116		$	14,895		$	15,649		$	15,774
Operating lease liabilities		15,425			16,315			15,322			15,176			15,884			16,035
Weighted-average remaining lease term (in years)		6.1			6.7			6.6			5.3			6.9			5.8
Weighted-average discount rate		2.68	%		2.64	%		2.70	%		2.57	%		2.66	%		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 contain residual value guarantees or material variable lease payments. The Company does not have any other material restrictions or covenants imposed by leases that would impact the Company's ability to pay dividends or cause the Company to incur additional financial obligations.

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


Year ending December 31,
2023	$	1,587
2024		2,770
2025		2,322
2026		2,211
2027		3,731
Thereafter		4,560
Total lease payments		17,181
Less imputed interest		(2,005	)
Total lease liability	$	15,176

Year ending December 31,

2022

$
760

2023

2,948

2024

2,599

2025

2,163

2026

2,052

Thereafter

8,063

Total lease payments

18,585

Less imputed interest

(3,160
)
Total lease liability

$
15,425

The components of lease expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 were as follows (in thousands):


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
	2022			2021			2022			2021			2023			2022			2023			2022
Operating lease cost	$	893		$	604		$	2,268		$	2,052		$	825		$	639		$	1,578		$	1,268
Short-term lease cost		21			11			63			96			(3	)		15			27			42
Variable lease cost		43			373			502			622			191			300			414			566
Total lease cost		957			988			2,833			2,770			1,013			954			2,019			1,876
Income from subleases		(109	)		(132	)		(299	)		(452	)		(93	)		(90	)		(187	)		(190	)
Net lease cost	$	848		$	856		$	2,534		$	2,318		$	920		$	864		$	1,832		$	1,686

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


	June 30, 2023		June 30, 2022
Operating cash flows from operating leases	$	1,577	$	1,517

September 30, 2022

September 30, 2021

Operating cash flows from operating leases

$
2,286

$
2,161

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.

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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):


	Balance Sheet Location	Weighted Average Remaining Maturity (Years)	Notional Amount		Estimated Value
June 30, 2023
Fair value hedges:
Interest rate swap agreements	Other liabilities	5.8	$	13,208	$	(2,723	)

December 31, 2022
Fair value hedges:
Interest rate swap agreements	Other liabilities	6.3	$	13,448	$	(3,100	)

Balance
Sheet
Location

Weighted
Average
Remaining
Maturity
(Years)

Notional
Amount

Estimated
Value

September 30, 2022

Fair value hedges:

Interest rate swap agreements

Other liabilities

6.6

$
13,610

$
(3,296
)

December 31, 2021

Fair value hedges:

Interest rate swap agreements

Other liabilities

7.3

$
13,900

$
(1,476
)

The effects of the fair value hedges on the Company's income statement during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 were as follows (in thousands):


		Three months ended June 30,				Six months ended June 30,
Derivative	Location of Gain (Loss) on Derivatives	2023		2022		2023		2022
Interest rate swap agreements	Interest income on loans	$	363	$	492	$	38	$	1,277


		Three months ended June 30,						Six months ended June 30,
Derivative	Location of Gain (Loss) on Hedged Items	2023			2022			2023			2022
Interest rate swap agreements	Interest income on loans	$	(363	)	$	(492	)	$	(38	)	$	(1,277	)

Three months ended September 30,

Nine months ended September 30,

Derivative

Location of Gain (Loss) on Derivatives

2022

2021

2022

2021

Interest rate swap agreements

Interest income on loans

$
595

$
(38
)

$
1,871

$
(629
)

Three months ended September 30,

Nine months ended September 30,

Derivative

Location of Gain (Loss) on Hedged Items

2022

2021

2022

2021

Interest rate swap agreements

Interest income on loans

$
(595
)

$
38

$
(1,871
)

$
629

As of ~~September~~June 30, ~~2022,~~2023, the following amounts were recorded on the consolidated balance sheet related to cumulative basis adjustment for fair value hedges (in thousands):

Line Item in the Balance Sheet in Which

the Hedge Item is Included

Carrying Amount of the

Hedged Asset

Cumulative Amount of Fair Value Hedging

Adjustment Included in the Carrying

Amount of the Hedged Asset

Carrying Amount of the
Hedged Asset

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

Loans

12,406

(1,205

)

12,018

(1,191

)

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 ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 (dollars in thousands):

September 30, 2022	Balance Sheet Location	Weighted Average Remaining Maturity (Years)	Notional Amount		Estimated Value

June 30, 2023								Balance Sheet Location	Weighted Average Remaining Maturity (Years)	Notional Amount		Estimated Value
Interest rate swap agreements	Other assets	5.3	$	39,511	$	4,501		Other assets	5.5	$	31,449	$	3,913
Interest rate swap agreements	Other liabilities	5.3		39,511		(4,501	)	Other liabilities	5.5		31,449		(3,913	)

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

The following discussion and analysis is intended to provide a better understanding of the consolidated financial condition and results of operations of the Company and its subsidiaries as of, and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~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 document may contain certain forward-looking statements about First Mid and Blackhawk, such as discussions of ~~the Company’s~~First 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 Company~~First 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,” “intend,” “anticipate,” “estimate,” “project,” or similar expressions. Actual results could differ materially from the results indicated by these statements because the realization of those results is subject to many risks and uncertainties, including, 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 approvals; the failure of the proposed transactions to close for any other reason; the effect of the announcement of the proposed transactions on customer relationships and operating results; the possibility that the proposed transactions may be more expensive to complete than anticipated, including as a result of unexpected factors or events; changes in interest rates; general economic conditions and those in the market areas of ~~the Company;~~First Mid and Blackhawk; legislative and/or regulatory changes; monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board; the quality or composition of ~~the~~First Mid’s and Blackhawk’s loan or investment portfolios and the valuation of those investment portfolios; demand for loan products; deposit flows; competition, demand for financial services in the market areas of ~~the Company’s;~~First Mid and Blackhawk; accounting principles, policies and guidelines; the direct and indirect impact of the COVID-19 pandemic, including responses to the pandemic by the U.S., state and local governments, customers' businesses, the disruption of global, national, state and local economies associated with the COVID-19 pandemic, which could affect the company’s liquidity and capital positions, impair the ability of the company’s borrowers to repay outstanding loans, impair collateral values, and further increase the allowance for credit losses, and the impact of the global COVID-19 pandemic on First Mid’s or Blackhawk’s businesses, the ~~Company’s financial results, including possible lost revenue and increased expenses (including cost~~ability to complete the proposed transactions or any of ~~capital), as well as possible goodwill impairment charges.~~the other foregoing risks. Additional information concerning ~~the Company,~~First Mid, including additional factors and risks that could materially affect ~~the Company~~First Mid’s financial results, are included in ~~the Company~~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.

~~COVID-19 Impact~~

~~Lendingoperationsandaccommodations~~to~~customers.Beginning April 3, 2020,withthepassage~~of~~theinitialPaycheckProtectionProgram(“PPP”),administered~~by~~theSmallBusiness Administration (“SBA”), the Company actively participated in assisting existing and new customers with applications for resourcesthroughtheprogram.PPPloanshave~~a~~two to five-yeartermandearninterest~~at~~1%.TheCompanybelievesthatmost of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. As of September 30, 2022, the Companyhasoutstanding 15PPPloanstotaling$0.5 million~~ ~~with the SBA.~~Itis~~theCompany’sunderstanding that loans funded through the PPP program are fully guaranteed by the U.S. government and as such do not represent a credit risk.~~

~~Capital and liquidity.~~ The Company’s current allowance for credit losses could absorb net charge offs greater than the total of all net charge offs over the last 20 years. The Company’s aggregate net charge offs over the last 20 years through September 30, 2022, were $36.7 million. Current capital levels also support the Company's recent loan stress testing of the most vulnerable industry sectors impacted by COVID-19.Overview

~~The Company maintains access to multiple sources of liquidity. Currently, the Company's total liquidity sources could provide $2.2 billion of total available capacity as of September 30, 2022.~~

~~Management's outlook.~~ ~~The Company's current financial position is strong and the fundamental earning capabilities of its currently existing operations is solid. WhiletheCompanydoesnotcurrentlyanticipateanymaterialchanges~~or~~deficiencies to its capital or liquidity sources, uncertainties about duration and overall effects on the economy could result in more adverse effects thanexpected.~~

~~Overview~~

This overview of management’s discussion and analysis highlights selected information in this document and may not contain all 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 ~~$52,313,000~~$35.7 million and ~~$34,656,000~~$34.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. Diluted net income per common share was ~~$2.60~~$1.74 and ~~$1.94~~$1.72 for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, ~~and 2021,~~ respectively.

The following table shows the Company’s annualized performance ratios for ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, compared to the performance ratios for the year ended December 31, ~~2021:~~2022:


	Nine months ended						Year ended			Six months ended						Year ended
	September 30, 2022			September 30, 2021			December 31, 2021			June 30, 2023			June 30, 2022			December 31, 2022
Return on average assets		1.07	%		0.82	%		0.90	%		1.07	%		1.07	%		1.11	%
Return on average common equity		10.71	%		7.58	%		8.38	%		11.07	%		10.48	%		11.38	%
Average equity to average assets		9.98	%		10.83	%		10.72	%		9.66	%		10.18	%		9.77	%

Total assets were $6.7 billion at ~~September~~June 30, ~~2022,~~2023, compared to ~~$6.0~~$6.7 billion as of December 31, ~~2021.~~2022. From December 31, ~~2021~~2022 to ~~September~~June 30, ~~2022,~~2023, cash and ~~interest-bearing deposits decreased $7.6~~cash equivalents increased $21.8 million, net loan balances ~~increased $722.9~~decreased $14.8 million and investment securities decreased ~~$194.8~~$54.5 million. Net loan balances were ~~$4.66~~$4.75 billion at ~~September~~June 30, ~~2022~~2023 compared to ~~$3.94~~$4.77 billion at December 31, ~~2021. The increase was primarily due to the acquisition of Jefferson Bank during the first quarter of~~ 2022.

Net interest margin, on a tax equivalent basis, defined as net interest income divided by average interest-earning assets, was ~~3.16%~~2.89% for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, down from ~~3.25%~~3.13% for the same period in ~~2021.~~2022. This decrease was primarily due to ~~slightly lower yields~~increased rates on ~~loans~~interest-bearing deposits and borrowings partially offset by an increase ~~rate on interest-bearing deposits and borrowings.~~in earning asset yields. Net interest income before the provision for loan losses was ~~$138.6~~$85.6 million compared to net interest income of ~~$125.0~~$90.3 million for the same period in ~~2021.~~2022. The ~~increase~~decrease in net interest income was primarily due to higher funding costs, offset by organic growth and the acquisition of Jefferson Bank during the first quarter of 2022.

Total non-interest income of ~~$56.5~~$42.0 million increased ~~$4.1~~$2.3 million or ~~7.8%~~5.7% from ~~$52.4~~$39.7 million for the same period last year. The increase in non-interest income resulted primarily from an increase in ~~wealth management revenues,~~ insurance commissions and income from Jefferson Bank.

Total non-interest expense of ~~$123.5~~$81.6 million ~~increased $3.6~~decrease $0.3 million or ~~3.0%~~0.4% from ~~$119.9~~$81.9 million for the same period last year. The ~~increased~~decrease was primarily due to ~~variable costs tied to~~ the ~~increased revenues, inflationary impacts, and expenses from the acquisition of Delta during the first nine months of 2022.~~Companay's ongoing efficiency improvement efforts.

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


							Change in Net Income
	Change in Net Income						2023 versus 2022
	2022 versus 2021						Three months ended			Six months ended
	Three months ended September 30, 2022			Nine months ended September 30, 2022			June 30, 2023			June 30, 2023
Net interest income	$	2,761		$	13,598		$	(4,459	)	$	(4,790	)
Provision for credit losses		961			8,678			449			4,218
Other income, including securities transactions		432			4,083			927			2,281
Other expenses		(5,228	)		(3,555	)		1,473			321
Income taxes		687			(5,147	)		419			(657	)
Increase (decrease) in net income	$	(387	)	$	17,657		$	(1,191	)	$	1,373

Credit quality is an area of importance to the Company. Total nonperforming loans were ~~$20.8~~$18.6 million at ~~September~~June 30, 2023, compared to $20.0 million at June 30, 2022 ~~compared to $27.7 million at September 30, 2021~~ and ~~$22.0~~$19.2 million at December 31, ~~2021.~~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 ~~$4.3~~$4.0 million at ~~September~~June 30, 2023 compared to $4.2 million at June 30, 2022 ~~compared to $5.6 million at September 30, 2021~~ and ~~$5.0~~$4.4 million at December 31, ~~2021.~~2022.

The Company’s provision for credit losses for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 ~~and 2021~~ was ~~$4.0~~($0.4) million and ~~$12.7~~$3.9 million, respectively. The provision expense during the first ~~nine~~six months of 2022 included recording an initial provision for credit losses for Jefferson Bank of ~~$2 million. Provision expense during the first nine months of 2021 included recording an initial provision for credit losses for Providence Bank loans of $11.5~~$2.0 million. Total loans past due 30 days or more were ~~0.34%~~0.22% of loans at ~~September~~June 30, 2023 compared to 0.47% at June 30, 2022, ~~compared to 0.54% at September 30, 2021,~~ and ~~0.62%~~0.24% of loans at December 31, ~~2021.~~2022. Loans secured by both commercial and residential real estate comprised approximately ~~68.6%~~69.0% of the loan portfolio as of ~~September~~June 30, ~~2022~~2023 and ~~69.8%~~68.8% as of December 31, ~~2021.~~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~~June 30, ~~2022~~2023 and ~~2021~~2022 and December 31, ~~2021~~2022 was ~~12.28%~~12.82%, ~~12.53%~~12.16% and ~~12.51%~~12.40%, respectively. The Company’s total capital to risk weighted assets ratio calculated under the regulatory risk-based capital requirements at ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, and December 31, ~~2021~~2022 was ~~15.11%~~15.67%, ~~15.87%~~15.05% and ~~15.79%~~15.20%, respectively. The ~~decrease~~increase in Tier 1 capital and total to risk weighted assets ratio from December 31, ~~2021~~2022 was primarily due to ~~the acquisition of Delta and dividends paid to shareholders, offset by~~ net income added to retained earnings.

On March 27, 2020, the federal banking regulatory agencies, issued an interim final rule which provided an option to delay the estimated impact on regulatory capital of ASU 2016-13, which was effective January 1, 2020. The initial impact of adoption of ASU 2016-13, as well as 25% of the quarterly increases in the allowance for credit losses subsequent to adoption of ASU 2016-13 ("CECL adjustments"), 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.

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~~June 30, ~~2022~~2023 and ~~2021,~~2022, were $1.2 billion and ~~$1.0~~$1.2 billion, respectively. ~~The increase in outstanding commitments was primarily due to the acquisition of Jefferson Bank.~~

Federal Deposit Insurance Corporation Insurance Coverage. As FDIC-insured institutions, First Mid Bank ~~and Jefferson Bank are~~is required to pay deposit insurance premium assessments to the FDIC. Several requirements with respect to the FDIC insurance system have affected results, including insurance assessment rates.

The Company expensed ~~$1,341,000~~$1.5 million and ~~$1,198,000~~$0.9 million for the assessment during the first ~~nine~~six months of 2023 and 2022, ~~and 2021,~~ respectively.

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 ~~2020~~2022 Annual Report on Form 10-K. Certain accounting policies involve significant judgments and assumptions by management that have a material impact on the carrying value of certain assets and liabilities; management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and assumptions, which could have a material impact on the carrying values of assets and liabilities and the results of operations of theCompany.

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~~“Accounting for Certain Investments in Debt and Equity Securities,” which was codified into ASC 320. Securities classified as held-to-maturity are recorded at amortized cost. Available-for-sale securities are carried at fair value. Fair value calculations are based on quoted market prices when such prices are available. If quoted market prices are not available, estimates of fair value are computed using a variety of techniques, including extrapolation from the quoted prices of similar instruments or recent trades for thinly traded securities, fundamental analysis, or through obtaining purchase quotes. Due to the subjective nature of the valuation process, it is possible that the actual fair values of these investments could differ from the estimated amounts, thereby affecting the financial position, results of operations and cash flows of the Company.

If the estimated value of investments is less than the cost or amortized cost, the Company evaluates whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment. If such an event or change has occurred and the Company determines that the impairment is other-than-temporary, a further determination is made as to the portion of impairment that is related to credit loss. The impairment of the investment that is related to the 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. The allowance for credit losses for loans represents the best estimate of losses inherent in the existing loan portfolio. An estimate of potential losses inherent in the loan portfolio are determined and an allowance for those losses is established by considering factors including historical loss rates, expected cash flows and estimated collateral values. In assessing these factors, the Company uses relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts.

The 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. 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 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~~“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 recognized is the largest amount of tax benefit that is greater than 50% likely to be recognized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded. A significant amount of judgment is applied to determine both whether the tax position meets the "more likely than not" test as well as to determine the largest amount of tax benefit that is greater than 50% likely to be recognized. Differences between the position taken by management and that of taxing authorities

could result in a reduction of a tax benefit or increase to tax liability, which could adversely affect future income tax expense.

Impairment of Goodwill and Intangible Assets. Core deposit and customer relationships, which are intangible assets with a finite life, are recorded on the Company’s consolidated balance sheets. These intangible assets were capitalized as a result of past acquisitions and are being amortized over their estimated useful lives of up to 15 years. Core deposit intangible assets, with finite lives will be tested for impairment when changes in events or circumstances indicate that its carrying amount may not be recoverable. Core deposit intangible assets were tested for impairment as of ~~September 30, 2021~~May 31, 2023 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~~“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.

•

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

•

~~Level~~2—~~inputsincludequotedpricesforsimilarassetsandliabilities~~in~~activemarkets,quotedprices~~ofidentical 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 valuemeasurement.~~

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.

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. Thefederal statutory rate in effect of 21% for ~~2022~~2023 and ~~2021~~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 ~~$2,373,000~~$1,500,000 and ~~$1,876,000~~$1,569,000 for ~~2022~~2023 and ~~2021,~~2022, respectively were ~~3.11%~~2.84% and ~~3.21%~~3.09% at ~~September~~June 30, 2023 and 2022, ~~and 2021,~~ respectively.

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~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 in the following table (dollars in thousands):


	Three months ended June 30, 2023								Three months ended June 30, 2022
	Average					Average			Average					Average
	Balance			Interest		Rate			Balance			Interest		Rate
Assets
Interest-bearing deposits with other financial institutions	$	35,093		$	456		5.21	%	$	52,006		$	89		69.00	%
Federal funds sold		8,025			98		4.90	%		4,660			6		0.52	%
Certificates of deposit		1,715			14		3.27	%		1,912			10		2.10	%
Investment securities:
Taxable		950,755			5,270		2.22	%		1,098,389			5,346		1.95	%
Tax-exempt (1)		276,719			2,434		3.52	%		337,261			2,882		3.42	%
Loans net of unearned income (TE) (2)		4,777,319			58,602		4.92	%		4,481,593			43,749		3.92	%
Total earning assets		6,049,626			66,874		4.43	%		5,975,821			52,082		3.50	%
Cash and due from banks		135,574								114,362
Premises and equipment		89,974								89,605
Other assets		464,899								442,860
Allowance for loan losses		(58,617	)							(58,744	)
Total assets	$	6,681,456							$	6,563,904
Liabilities and stockholders' equity
Interest-bearing deposits
Demand deposits	$	2,318,119		$	9,467		1.64	%	$	2,656,507		$	1,804		0.28	%
Savings deposits		619,426			168		0.11	%		684,708			124		0.07	%
Time deposits		983,323			6,945		2.83	%		646,565			595		0.37	%
Total interest-bearing deposits		3,920,868			16,580		1.70	%		3,987,780			2,523		0.25	%
Securities sold under agreements to repurchase		226,734			1,723		3.05	%		178,632			137		0.31	%
FHLB advances		486,920			4,084		3.36	%		230,636			640		1.11	%
Federal funds purchased		—			—		—	%		1,341			5		1.50	%
Subordinated Debt		94,606			988		4.19	%		94,451			986		4.19	%
Junior subordinated debt		19,427			390		8.05	%		19,252			166		3.46	%
Other debt		—			—		—	%		55			—		—	%
Total borrowings		827,687			7,185		3.48	%		524,367			1,934		1.48	%
Total interest-bearing liabilities		4,748,555			23,765		2.01	%		4,512,147			4,457		0.40	%
Non interest-bearing demand deposits		1,228,395					1.59	%		1,363,548					0.30	%
Other liabilities		46,163								43,900
Stockholders' equity		658,343								644,309
Total liabilities and equity	$	6,681,456							$	6,563,904
Net interest income				$	43,109							$	47,625
Net interest spread							2.42	%							3.10	%
Impact of non interest-bearing funds							0.42	%							0.10	%
TE net yield on interest-bearing assets							2.84	%							3.20	%


	Six months ended June 30, 2023								Six months ended June 30, 2022
	Average					Average			Average					Average
	Balance			Interest		Rate			Balance			Interest		Rate
Assets
Interest-bearing deposits with other financial institutions	$	25,444		$	665		5.27	%	$	93,361		$	144		0.31	%
Federal funds sold		7,890			183		4.68	%		4,190			7		0.36	%
Certificates of deposit		1,752			28		3.28	%		2,074			21		2.03	%
Investment securities:
Taxable		954,298			10,433		2.19	%		1,105,354			10,251		1.85	%
Tax-exempt (1)		278,796			4,920		3.53	%		359,318			5,749		3.20	%
Loans net of unearned income (TE) (2)		4,782,757			115,071		4.85	%		4,332,925			83,825		3.90	%
Total earning assets		6,050,937			131,300		4.38	%		5,897,222			99,997		3.41	%
Cash and due from banks		135,361								114,309
Premises and equipment		90,159								86,760
Other assets		469,933								405,621
Allowance for loan losses		(59,085	)							(58,604	)
Total assets	$	6,687,305							$	6,445,308
Liabilities and stockholders' equity
Interest-bearing deposits
Demand deposits	$	2,410,582		$	19,122		1.60	%	$	2,633,667		$	3,125		0.24	%
Savings deposits		629,829			359		0.11	%		671,447			243		0.07	%
Time deposits		842,110			9,866		2.36	%		630,940			1,303		0.42	%
Total interest-bearing deposits		3,882,521			29,347		1.52	%		3,936,054			4,671		0.24	%
Securities sold under agreements to repurchase		228,861			3,186		2.81	%		176,076			204		0.23	%
FHLB advances		513,391			8,958		3.52	%		173,561			916		1.06	%
Federal funds purchased		387			9		4.69	%		696			5		1.45	%
Subordinated debt		94,587			1,975		4.21	%		94,432			1,972		4.21	%
Junior subordinated debentures		19,406			769		7.99	%		19,231			312		3.27	%
Other debt		—			—		—	%		28			—		—	%
Total borrowings		856,632			14,897		3.51	%		464,024			3,409		1.48	%
Total interest-bearing liabilities		4,739,153			44,244		1.88	%		4,400,078			8,080		0.37	%
Non interest-bearing demand deposits		1,248,710					1.49	%		1,346,645					0.28	%
Other liabilities		53,408								42,628
Stockholders' equity		646,034								655,957
Total liabilities and equity	$	6,687,305							$	6,445,308
Net interest income				$	87,056							$	91,917
Net interest spread							2.50	%							3.04	%
Impact of non interest-bearing funds							0.39	%							0.09	%
TE net yield on interest-earning assets							2.89	%							3.13	%

Three months ended September 30, 2022

Three months ended September 30, 2021

Average

Average

Average

Average

Balance

Interest

Rate

Balance

Interest

Rate

Assets

Interest-bearing deposits with other financial institutions

$
22,130

$
128

2.29
%

$
277,844

$
122

0.17
%
Federal funds sold

7,152

38

2.11
%

1,341

—

0.00
%
Certificates of deposit

1,417

8

2.24
%

2,453

13

2.10
%
Investment securities:

Taxable

1,047,335

5,106

1.95
%

976,817

3,961

1.62
%
Tax-exempt (1)

318,870

2,780

3.49
%

312,796

2,373

3.03
%
Loans net of unearned income (TE) (2)

4,666,157

49,498

4.21
%

3,824,988

43,463

4.51
%
Total earning assets

6,063,061

57,558

3.77
%

5,396,239

49,932

3.67
%
Cash and due from banks

122,616

100,475

Premises and equipment

90,715

82,057

Other assets

458,854

344,014

Allowance for loan losses

(59,319
)

(55,373
)

Total assets

$
6,675,927

$
5,867,412

Liabilities and stockholders' equity

Interest-bearing deposits

Demand deposits

$
2,545,619

$
3,570

0.56
%

$
2,336,601

$
1,177

0.20
%
Savings deposits

674,524

149

0.09
%

606,129

111

0.07
%
Time deposits

672,187

1,197

0.71
%

673,833

946

0.56
%
Total interest-bearing deposits

3,892,330

4,916

0.50
%

3,616,563

2,234

0.25
%
Securities sold under agreements to repurchase

207,079

428

0.82
%

160,686

52

0.13
%
FHLB advances

355,554

1,926

2.15
%

112,715

359

1.26
%
Federal funds purchased

272

1

1.46
%

—

—

—
%
Subordinated Debt

94,491

986

4.14
%

94,338

985

4.14
%
Junior subordinated debt

19,294

241

4.96
%

19,125

137

2.84
%
Total borrowings

676,690

3,582

2.10
%

386,864

1,533

1.57
%
Total interest-bearing liabilities

4,569,020

8,498

0.74
%

4,003,427

3,767

0.37
%
Non interest-bearing demand deposits

1,418,028

0.56
%

1,179,915

0.29
%
Other liabilities

47,131

56,107

Stockholders' equity

641,748

627,963

Total liabilities and equity

$
6,675,927

$
5,867,412

Net interest income

$
49,060

$
46,165

Net interest spread

3.03
%

3.30
%
Impact of non interest-bearing funds

0.18
%

0.08
%
TE net yield on interest-bearing assets

3.21
%

3.38
%

1.

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

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

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

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

Nine months ended September 30, 2022

Nine months ended September 30, 2021

Average

Average

Average

Average

Balance

Interest

Rate

Balance

Interest

Rate

Assets

Interest-bearing deposits with other financial institutions

$
69,356

$
272

0.52
%

$
299,360

$
283

0.13
%
Federal funds sold

5,188

45

1.17
%

1,329

—

0.03
%
Certificates of deposit

1,852

29

2.06
%

2,612

42

2.16
%
Investment securities:

Taxable

1,085,604

15,357

1.89
%

877,306

11,256

1.71
%
Tax-exempt (1)

345,886

8,529

3.29
%

277,379

6,532

3.14
%
Loans net of unearned income (TE) (2)

4,445,223

133,323

4.01
%

3,726,531

120,477

4.32
%
Total earning assets

5,953,109

157,555

3.54
%

5,184,517

138,590

3.57
%
Cash and due from banks

117,109

92,180

Premises and equipment

88,093

79,328

Other assets

423,585

327,463

Allowance for loan losses

(58,845
)

(52,619
)

Total assets

$
6,523,051

$
5,630,869

Liabilities and stockholders' equity

Interest-bearing deposits

Demand deposits

$
2,603,995

$
6,695

0.34
%

$
2,130,511

$
3,090

0.19
%
Savings deposits

672,484

392

0.08
%

608,844

370

0.08
%
Time deposits

644,840

2,500

0.52
%

695,536

3,520

0.68
%
Total interest-bearing deposits

3,921,319

9,587

0.33
%

3,434,891

6,980

0.27
%
Securities sold under agreements to repurchase

186,524

632

0.45
%

178,647

179

0.13
%
FHLB advances

234,892

2,842

1.62
%

109,178

1,178

1.44
%
Federal funds purchased

553

6

1.45
%

—

—

—
%
Subordinated debt

94,452

2,958

4.19
%

94,302

2,954

4.19
%
Junior subordinated debentures

19,252

553

3.84
%

19,084

416

2.91
%
Other debt

18

—

—
%

—

—

—
%
Total borrowings

535,691

6,991

1.74
%

401,211

4,727

1.58
%
Total interest-bearing liabilities

4,457,010

16,578

0.50
%

3,836,102

11,707

0.41
%
Non interest-bearing demand deposits

1,370,701

0.38
%

1,126,464

0.32
%
Other liabilities

44,170

58,440

Stockholders' equity

651,170

609,863

Total liabilities and equity

$
6,523,051

$
5,630,869

Net interest income

$
140,977

$
126,883

Net interest spread

3.04
%

3.16
%
Impact of non interest-bearing funds

0.12
%

0.09
%
TE net yield on interest-earning assets

3.16
%

3.25
%

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

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

Changes in net interest income may also be analyzed by segregating the volume and rate components of interest income and interest expense. The following table summarizes the approximate relative contribution of changes in average volume and interest rates to changes in net interest income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to the same period in ~~2021~~2022 (in thousands):


	Three months ended June 30, 2023 compared to 2022 Increase / (Decrease)									Six months ended June 30, 2023 Compared to 2022 Increase / (Decrease)
	Total									Total
	Change			Volume (1)			Rate (1)			Change			Volume (1)			Rate (1)
Earning assets:
Interest-bearing deposits	$	367		$	(206	)	$	573		$	521		$	(381	)	$	902
Federal funds sold		92			7			85			176			12			164
Certificates of deposit investments		4			(6	)		10			7			(10	)		17
Investment securities:
Taxable		(76	)		(2,959	)		2,883			182			(3,128	)		3,310
Tax-exempt (2)		(448	)		(531	)		83			(829	)		(1,379	)		550
Loans (2) (3)		14,853			3,052			11,801			31,246			9,337			21,909
Total interest income	$	14,792		$	(643	)	$	15,435		$	31,303		$	4,451		$	26,852
Interest-bearing liabilities:
Interest-bearing deposits
Demand deposits	$	7,663		$	(1,595	)	$	9,258		$	15,997		$	(819	)	$	16,816
Savings deposits		44			(72	)		116			116			(41	)		157
Time deposits		6,350			461			5,889			8,563			579			7,984
Securities sold under agreements to repurchase		1,586			47			1,539			2,982			77			2,905
FHLB advances		3,444			1,220			2,224			8,042			3,680			4,362
Federal funds purchased		(5	)		(3	)		(2	)		4			(6	)		10
Subordinated debt		2			2			—			3			3			—
Junior subordinated debentures		224			2			222			457			3			454
Total interest expense		19,308			62			19,246			36,164			3,476			32,688
Net interest income	$	(4,516	)	$	(705	)	$	(3,811	)	$	(4,861	)	$	975		$	(5,836	)

Three months ended September 30, 2022
compared to 2021 Increase / (Decrease)

Nine months ended September 30, 2022
compared to 2021 Increase / (Decrease)

Total

Total

Change

Volume (1)

Rate (1)

Change

Volume (1)

Rate (1)

Earning assets:

Interest-bearing deposits
$
6

$
(810
)

$
816

$
(11
)

$
(478
)

$
467

Federal funds sold

38

—

38

45

3

42

Certificates of deposit investments

(5
)

(10
)

5

(13
)

(11
)

(2
)
Investment securities:

Taxable

1,145

300

845

4,101

2,841

1,260

Tax-exempt (2)

407

47

360

1,997

1,677

320

Loans (2) (3)

6,035

22,254

(16,219
)

12,846

26,201

(13,355
)
Total interest income
$
7,626

$
21,781

$
(14,155
)

$
18,965

$
30,233

$
(11,268
)
Interest-bearing liabilities:

Interest-bearing deposits

Demand deposits
$
2,393

$
113

$
2,280

$
3,605

$
792

$
2,813

Savings deposits

38

11

27

22

22

—

Time deposits

251

(16
)

267

(1,020
)

(241
)

(779
)
Securities sold under agreements to repurchase

376

19

357

453

8

445

FHLB advances

1,567

1,180

387

1,664

1,501

163

Federal funds purchased

1

5

—

6

6

—

Subordinated debt

1

1

—

4

4

—

Junior subordinated debentures

104

1

103

137

4

133

Total interest expense

4,731

1,314

3,421

4,871

2,096

2,775

Net interest income
$
2,895

$
20,467

$
(17,576
)

$
14,094

$
28,137

$
(14,043
)
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.

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

Nonaccrual loans have been included in the average balances.

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

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

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

Tax equivalent net interest income ~~increased $14.1~~decreased $4.9 million, or ~~11.1%~~5.3%, to ~~$141.0~~$87.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, from ~~$126.9~~$91.9 million for the same period in ~~2021.~~2022. Net interest income ~~increased primarily due to the acquisition of Jefferson Bank during the first quarter of 2022. The~~and net interest margin decreased primarily due to ~~slightly lower interest rates on loans and investments and~~ an increase in deposit and borrowing ~~rates.~~rates more than offsetting the increase in earning asset yields.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, average earning assets increased ~~$768.6~~$153.7 million, or ~~14.8%~~2.6%, and average interest-bearing liabilities increased ~~$620.9~~$339.1 million or ~~16.2%~~7.7% compared with average balances for the same period in ~~2021.~~2022.

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

•	~~Average interest-bearing deposits with other financial institutions decreased $230.0 million or 76.8%.~~

•	~~Average federal funds sold increased $3.9 million or 290.4%.~~

•	~~Average certificates of deposits investments decreased $0.8 million or 29.1%.~~

•	~~Average loans increased by $718.7 million or 19.3%.~~

•	~~Average securities increased by $276.8 million or 24.0%.~~

•	~~Average interest-bearing customer deposits increased by $486.4 million or 14.2%.~~

•	~~Average securities sold under agreements to repurchase increased by $7.9 million or 4.4%.~~

•	~~Average borrowings and other debt increased by $126.6 million or 56.9%.~~

•

Average interest-bearing deposits with other financial institutions decreased $67.9 million or 72.7%.

•

Average federal funds sold increased $3.7 million or 88.3%.

•

Average certificates of deposits investments decreased $0.3 million or 15.5%.

•

Average loans increased by $449.8 million or 10.4%.

•

Average securities decreased by $231.6 million or 15.8%.

•

Average interest-bearing customer deposits decreased by $53.5 million or 1.4%.

•

Average securities sold under agreements to repurchase increased by $52.8 million or 30.0%.

•

Average borrowings and other debt increased by $339.8 million or 118.0%.

•

Net interest margin decreased to ~~3.16%~~2.89% for the first ~~nine~~six months of ~~2022~~2023 from ~~3.25%~~3.13% for the first ~~nine~~six months of ~~2021.~~2022.

Provision for Loan Losses

The provision for ~~loan~~credit losses for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 ~~and 2021~~ was ~~$4.0~~($0.4) million and ~~$12.7~~$3.9 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 million. The provision expense during the first nine months of 2021 included recording an initial provision for credit losses for Providence Bank loans of $11.5~~$2.0 million. Net charge-offs were ~~$742,000~~$15,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to net ~~charge offs~~recoveries of ~~$2,680,000~~$302,000 for ~~September~~June 30, ~~2021.~~2022. Nonperforming loans were ~~$20.8~~$18.6 million and ~~$27.7~~$20.0 million as of ~~September~~June 30, ~~2022~~2023 and ~~2021,~~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 and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (in thousands):


	Three months ended September 30,										Nine months September 30,										Three months ended June 30,											Six months ended June 30,
	2022		2021		$ Change			% Change			2022		2021		$ Change			% Change			2023			2022		$ Change			% Change			2023			2022		$ Change			% Change
Wealth management revenues	$	4,843	$	4,204	$	639			15.2	%	$	16,291	$	14,146	$	2,145			15.2	%	$	5,341		$	5,473	$	(132	)		-2.4	%	$	10,855		$	11,448	$	(593	)		-5.2	%
Insurance commissions		4,158		3,932		226			5.7	%		16,903		14,777		2,126			14.4	%		5,737			5,641		96			1.7	%		14,217			12,745		1,472			11.5	%
Service charges		2,445		1,838		607			33.0	%		6,737		4,741		1,996			42.1	%		2,386			2,236		150			6.7	%		4,589			4,292		297			6.9	%
Security gains, net		79		11		68			618.2	%		81		88		(7	)		-8.0	%
Security gains (losses), net																						(6	)		2		(8	)		-400.0	%		(52	)		2		(54	)		-2700.0	%
Mortgage banking revenue, net		355		1,477		(1,122	)		-76.0	%		1,125		4,577		(3,452	)		-75.4	%		332			289		43			14.9	%		482			770		(288	)		-37.4	%
ATM / debit card revenue		3,101		3,060		41			1.3	%		9,213		8,900		313			3.5	%		3,265			3,214		51			1.6	%		6,348			6,112		236			3.9	%
Bank owned life insurance		913		813		100			12.3	%		2,634		2,211		423			19.1	%		1,189			877		312			35.6	%		2,830			1,721		1,109			64.4	%
Other		897		1,024		(127	)		-12.4	%		3,491		2,952		539			18.3	%		1,242			827		415			50.2	%		2,696			2,594		102			3.9	%
Total other income	$	16,791	$	16,359	$	432			2.6	%	$	56,475	$	52,392	$	4,083			7.8	%	$	19,486		$	18,559	$	927			5.0	%	$	41,965		$	39,684	$	2,281			5.7	%

Following are explanations of the changes in these other income categories for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the same period in ~~2021:~~2022:

•

Wealth management revenues decreased due to lower market prices reducing fee based income.

•

Insurance commissions increased primarily due to an increase in commission income and contingency income during 2023 compared to the same period last year.

•

Fees from service charges increased during the first six months of 2023 primarily due to an increase in overdraft fees and transaction account service charges during the period and the acquisition of Jefferson Bank.

•

Net loss from the sale of securities during 2023 were $52,000 and net gains in 2022 were $2,000.

•

The decrease in mortgage banking income was due to a decrease in mortgage refinancing activity and fees from loans sold in the secondary market.

•

$25.8 million (representing 176 loans) for the six months ended June 30, 2023.

•

$35.9 million (representing 254 loans) for the six months ended June 30, 2022.

•

~~Wealth management revenues increased due to growth in customer accounts and assets under management as well as rising commodity prices, which drove higher farm management fee income.~~

•	~~Insurance commissions increased primarily due to an increase in commission income and contingency income during 2022 compared to the same period last year.~~

•	Fees from service charges increased during the first nine months of 2022 primarily due to an increase in overdraft fees and transaction account service charges during the period and the acquisition of Jefferson Bank.

•	~~Gains from the sale of securities during 2022 and 2021 were $81,000 and $88,000, respectively.~~

•	~~The decrease in mortgage banking income was due to a decrease in mortgage refinancing activity and fees from loans sold in the secondary market.~~

•

~~$20.0 million~~ ~~(representing 118 loans) for the three months ended September 30, 2022.~~

•

~~$42.2 million~~ ~~(representing 286 loans) for the three months ended September 30, 2021.~~

•

~~$55.9 million~~ ~~(representing 372 loans) for the nine months ended September 30, 2022.~~

•

~~$186.0 million~~ ~~(representing 807 loans) for the~~ ~~nine months ended September 30, 2021~~.

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

•

Revenue from ATMs and debit cards increased due to an increase in activity during the period and the acquisition of Jefferson Bank.

•

Bank owned life insurance income increased approximately $1.1 million during the first six months of 2023 compared to the same period in 2022 primarily due to a claim payout, higher rates, and $15.8 million of insurance added through the acquisition of Jefferson Bank.

•

Other income increased primarily due to an increase in various fees and other miscellaneous income.

•

~~Revenue from ATMs and debit cards increased due to an increase in activity during the period and the acquisition of Jefferson Bank.~~

•	~~Bank owned life insurance income increased approximately $423,000 during the first nine months of~~ ~~2022~~ ~~compared to the same period in~~ ~~2021~~ ~~primarily due to $15.8 million of insurance added through the acquisition of Jefferson Bank.~~

•	~~Other income increased primarily due to a gain realized on the termination of derivatives and the acquisition of Jefferson Bank.~~

Other Expense

The following table sets forth the major components of other expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (dollars in thousands):


	Three months ended June 30,										Six months ended June 30,
	2023		2022		$ Change			% Change			2023		2022		$ Change			% Change
Salaries and employee benefits	$	23,544	$	25,768	$	(2,224	)		-8.6	%	$	49,615	$	50,107	$	(492	)		-1.0	%
Net occupancy and equipment expense		6,035		6,073		(38	)		-0.6	%		12,040		12,228		(188	)		-1.5	%
Net other real estate owned expense		27		218		(191	)		-87.6	%		160		185		(25	)		-13.5	%
FDIC insurance		1,076		436		640			146.8	%		1,539		862		677			78.5	%
Amortization of intangible assets		1,477		1,633		(156	)		-9.6	%		2,999		3,155		(156	)		-4.9	%
Stationery and supplies		315		325		(10	)		-3.1	%		607		636		(29	)		-4.6	%
Legal and professional		1,780		1,885		(105	)		-5.6	%		3,470		3,619		(149	)		-4.1	%
Marketing and donations		908		706		202			28.6	%		1,562		1,579		(17	)		-1.1	%
ATM/debit card expense		1,016		670		346			51.6	%		2,239		1,748		491			28.1	%
Other operating expenses		3,864		3,801		63			1.7	%		7,388		7,821		(433	)		-5.5	%
Total other expense	$	40,042	$	41,515	$	(1,473	)		-3.5	%	$	81,619	$	81,940	$	(321	)		-0.4	%

Three months September 30,

Nine months September 30,

2022

2021

$ Change

% Change

2022

2021

$ Change

% Change

Salaries and employee benefits

$
24,877

$
21,092

$
3,785

17.9
%

$
74,984

$
69,487

$
5,497

7.9
%
Net occupancy and equipment expense

5,903

5,382

521

9.7
%

18,131

15,834

2,297

14.5
%
Net other real estate owned expense

58

1,507

(1,449
)

-96.2
%

243

3,551

(3,308
)

-93.2
%
FDIC insurance

479

268

211

78.7
%

1,341

1,198

143

11.9
%
Amortization of intangible assets

1,598

1,414

184

13.0
%

4,753

3,929

824

21.0
%
Stationery and supplies

361

299

62

20.7
%

997

850

147

17.3
%
Legal and professional

1,770

1,878

(108
)

-5.8
%

5,389

4,919

470

9.6
%
Marketing and donations

739

679

60

8.8
%

2,318

1,688

630

37.3
%
ATM/debit card expense

1,243

618

625

101.1
%

2,991

2,530

461

18.2
%
Other operating expenses

4,521

3,184

1,337

42.0
%

12,342

15,948

(3,606
)

-22.6
%
Total other expense

$
41,549

$
36,321

$
5,228

14.4
%

$
123,489

$
119,934

$
3,555

3.0
%

Following are explanations for the changes in these other expense categories for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the same period in ~~2021:~~2022:

•

The decrease in salaries and employee benefits, the largest component of other expense, is primarily due to the company's efficiency improvement efforts and lower bonus accrual expense during the first six months of 2023. There were 995 and 1,025 full-time equivalent employees at June 30, 2023 and 2022, respectively.

•

The decrease in occupancy and equipment expense was due to decreases in building maintenance and uncapitalized equipment.

•

The decrease net other real estate owned expense was primarily due to properties sold that no longer have ongoing expense during 2023.

•

Expense for amortization of intangible assets declined for the six months ended June 30, 2023 compared to 2022. Core deposit intangibles and mortgage servicing rights decreased.

•

The decrease in other operating expenses during the first six months of 2023 was primarily due to less acquisition costs in 2023 due to the acquisition of Delta in the first quarter of 2022.

•

On a net basis, all other categories of operating expenses decreased during the period compared to last year primarily due to the the Company's ongoing efficiency improvement efforts.

•

The increase in salaries and employee benefits, the largest component of other expense, is primarily due to an increase in incentive compensation and commissions, share-based compensation expense, increases for merit raises and applicable payroll taxes, and the addition of Jefferson Bank, offset by declines in bonus accrual expense and group insurance expense, during the first ~~nine monthsof 2022. There were 1,051 and 960 full-time equivalent employees at September 30, 2022 and 2021, respectively~~.

•	The increase in occupancy and equipment expense was due to increases in depreciation, equipment, and other property related expenses from the acquisition of Jefferson Bank and offset by decreases in data processing expense.

•	~~The decrease in net other real estate owned expense was primarily due to properties sold at a net gain during 2022 compared to properties sold or written down at a net loss during 2021.~~

•	~~Expense for amortization of intangible assets increased due to increases in amortization expense for additional core deposit intangibles~~ ~~resulting from the acquisition of Jefferson Bank,~~ ~~for the~~ ~~nine months ended September 30, 2022 compared to 2021.~~

•	~~The decrease in other operating expenses was primarily due to less costs to acquire Delta compared to cost to acquire LINCO offset by additional expenses from the operation of Jefferson Bank.~~

•	On a net basis, all other categories of operating expenses increased during the period compared to last year primarily due to the operation of Jefferson Bank offset by a decrease in ATM/debit card expense.

Income Taxes

Total income tax expense amounted to ~~$15.3~~$10.5 million ~~(22.8%~~(23.0% effective tax rate) for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$10.1~~$9.9 million ~~(22.6%~~(22.5% effective tax rate) for the same period in ~~2021.~~2022. The increase in effective rate is related to increased pre-tax net income 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 ~~2019.~~2020.

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~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (dollars in thousands)


	September 30, 2022					December 31, 2021					June 30, 2023					December 31, 2022
	Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	256,478		2.17	%	$	213,599		1.22	%	$	246,712		1.29	%	$	252,934		1.28	%
Obligations of states and political subdivisions		360,622		2.34	%		383,991		2.40	%		338,377		2.30	%		347,409		2.31	%
Mortgage-backed securities: GSE residential		763,882		1.69	%		799,456		1.58	%		713,394		1.69	%		744,636		1.69	%
Other securities		88,878		3.24	%		32,575		4.30	%		82,291		3.39	%		90,347		3.41	%
Total securities	$	1,469,860		2.03	%	$	1,429,621		1.80	%	$	1,380,774		1.87	%	$	1,435,326		1.87	%

At ~~September~~June 30, ~~2022,~~2023, the Company’s investment portfolio ~~increased~~decreased by ~~$40.2~~$54.6 million from December 31, ~~2021~~2022 primarily due to securities ~~added with~~sold and securities maturing in the ~~acquisition of Jefferson Bank.~~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~~June 30, ~~2022~~2023 for investment securities (in thousands):


					Average Credit Rating of Fair Value at June 30, 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	$	246,712	$	215,154	$	25,517	$	189,637	$	—	$	—	$	—	$	—
Obligations of state and political subdivisions		338,377		282,016		37,172		199,289		44,765		—		—		790
Mortgage-backed securities (2)		713,394		593,748		850		—		—		—		—		592,898
Other securities		79,320		73,415		—		9,814		25,518		6,307		—		31,776
Total available-for-sale	$	1,377,803	$	1,164,333	$	63,539	$	398,740	$	70,283	$	6,307	$	—	$	625,464
Held-to-maturity:
Other securities		2,971		2,971		—		—		—		—		—		2,971
Total held-to-maturity	$	2,971	$	2,971	$	—	$	—	$	—	$	—	$	—	$	2,971
Equity securities:
Federal Agricultural Mtg Corp	$	85	$	409	$	—	$	—	$	—	$	—	$	—	$	409

Average Credit Rating of Fair Value at September 30, 2022 (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

$
256,478

$
222,731

$
26,132

$
196,599

$
—

$
—

$
—

$
—

Obligations of state and political subdivisions

360,622

286,108

35,130

206,311

44,131

—

—

536

Mortgage-backed securities (2)

763,882

640,394

990

—

—

—

—

639,404

Other securities

85,948

81,555

—

11,934

29,647

3,820

—

36,154

Total available-for-sale

$
1,466,930

$
1,230,788

$
62,252

$
414,844

$
73,778

$
3,820

$
—

$
676,094

Held-to-maturity:

Other securities

2,930

2,930

2,930

Total held-to-maturity

$
2,930

$
2,930

$
—

$
—

$
—

$
—

$
—

$
2,930

Equity securities:

Federal Agricultural Mtg Corp

$
84

$
317

$
—

$
—

$
—

$
—

$
—

$
317

1.

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

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

Loans

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

~~Loans~~

The loan portfolio 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~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):


	September 30, 2022					December 31, 2021					June 30, 2023					December 31, 2022
	Amortized Cost		% Outstanding Loans			Amortized Cost		% Outstanding Loans			Amortized Cost		% Outstanding Loans			Amortized Cost		% Outstanding Loans
Construction and land development	$	142,801		3.0	%	$	145,118		3.6	%	$	151,574		3.1	%	$	144,264		3.0	%
Agricultural real estate		360,424		7.6	%		279,272		7.0	%		392,220		8.1	%		410,327		8.5	%
1-4 family residential properties		436,625		9.2	%		400,313		10.0	%		418,932		8.7	%		440,180		9.1	%
Multifamily residential properties		298,321		6.3	%		298,942		7.5	%		303,482		6.3	%		294,346		6.1	%
Commercial real estate		1,996,338		42.5	%		1,666,198		41.7	%		2,056,529		42.8	%		2,030,011		42.1	%
Loans secured by real estate		3,234,509		68.6	%		2,789,843		69.8	%		3,322,737		69.0	%		3,319,128		68.8	%
Agricultural loans		160,511		3.4	%		151,484		3.8	%		148,318		3.1	%		166,838		3.5	%
Commercial and industrial loans		1,064,033		22.5	%		832,008		20.8	%		1,094,522		22.7	%		1,082,960		22.4	%
Consumer loans		100,783		2.1	%		78,442		2.0	%		80,241		1.7	%		97,775		2.0	%
All other loans		160,454		3.4	%		143,746		3.6	%		167,598		3.5	%		159,511		3.3	%
Total loans	$	4,720,290		100.0	%	$	3,995,523		100.0	%	$	4,813,416		100.0	%	$	4,826,212		100.0	%

Loan balances ~~increased $724.8~~decreased $12.8 million, or ~~18.1%~~(0.3%). The ~~increase included approximately $426.4 million~~decrease was primarily due to less loan demand and lower line of ~~loans acquired, before purchase accounting adjustments, from Jefferson Bank. The increase was offset by payoffs and PPP forgiveness.~~credit draws. The balance of real estate loans held for sale, included in the balances shown above, amounted to ~~$0.5~~$2.7 million and ~~$2.7~~$0.3 million as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~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.

Loans are geographically dispersed in central and southern Illinois, the St. Louis Metro area, central Missouri, and Texas. While these regions have experienced some economic stress during ~~2022~~2023 and ~~2021,~~2022, the Company does not consider these locations high risk areas since these regions have not experienced the significant changes 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~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company did have industry loan concentrations that exceeded 25% of total risk-based capital in the following industries (dollars in thousands):


	June 30, 2023					December 31, 2022
	Principal balance		% Outstanding Loans			Principal balance		% Outstanding Loans
Other grain farming	$	417,565		8.68	%	$	445,241		9.23	%
Lessors of non-residential buildings		991,125		20.59	%		956,120		19.81	%
Lessors of residential buildings and dwellings		473,683		9.84	%		453,219		9.39	%
Hotels and motels		215,191		4.47	%		209,837		4.35	%

September 30, 2022

December 31, 2021

Principal
balance

% Outstanding
Loans

Principal
balance

% Outstanding
Loans

Other grain farming

$
397,492

8.42
%

$
297,394

7.44
%
Lessors of non-residential buildings

911,040

19.30
%

696,730

17.44
%
Lessors of residential buildings and dwellings

470,430

9.97
%

468,362

11.72
%
Hotels and motels

209,358

4.44
%

57,549

1.44
%

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

The following table presents the balance of loans outstanding as of ~~September~~June 30, ~~2022,~~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	$	28,758	$	73,195	$	49,621	$	151,574
Agricultural real estate		21,176		122,060		248,984		392,220
1-4 family residential properties		14,385		113,593		290,954		418,932
Multifamily residential properties		8,031		240,740		54,711		303,482
Commercial real estate		130,335		1,068,335		857,859		2,056,529
Loans secured by real estate		202,685		1,617,923		1,502,129		3,322,737
Agricultural loans		114,422		29,136		4,760		148,318
Commercial and industrial loans		373,997		469,450		251,075		1,094,522
Consumer loans		7,216		57,104		15,921		80,241
All other loans		25,533		25,479		116,586		167,598
Total loans	$	723,853	$	2,199,092	$	1,890,471	$	4,813,416

Maturity (1)

One year
or less(2)

Over 1 through
5 years

Over 5
years

Total

Construction and land development

$
45,056

$
58,207

$
39,538

$
142,801

Agricultural real estate

9,983

122,970

227,471

360,424

1-4 family residential properties

14,086

124,684

297,855

436,625

Multifamily residential properties

17,728

220,709

59,884

298,321

Commercial real estate

86,386

1,016,794

893,158

1,996,338

Loans secured by real estate

173,239

1,543,364

1,517,906

3,234,509

Agricultural loans

129,249

27,349

3,913

160,511

Commercial and industrial loans

347,743

432,628

283,662

1,064,033

Consumer loans

9,411

61,017

30,355

100,783

All other loans

33,747

25,012

101,695

160,454

Total loans

$
693,389

$
2,089,370

$
1,937,531

$
4,720,290

1.

Based upon remaining contractual maturity.

Includes demand loans, past due loans and overdrafts.

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

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

As of ~~September~~June 30, ~~2022,~~2023, loans with maturities over one year consisted of approximately ~~$2.7~~$2.4 billion in fixed rate loans and approximately ~~$1.3~~$1.7 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.

The following table presents information concerning the aggregate amount of nonperforming loans and repossessed assets at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (dollars in thousands):


	September 30, 2022			December 31, 2021			June 30, 2023			December 31, 2022
Nonaccrual loans	$	17,866		$	18,105		$	17,298		$	15,956
Restructured loans which are performing in accordance with revised terms		2,946			3,931
Modified loans which are performing in accordance with revised terms								1,339			3,214
Total nonperforming loans		20,812			22,036			18,637			19,170
Repossessed assets		4,331			5,019			3,978			4,369
Total nonperforming loans and repossessed assets	$	25,143		$	27,055		$	22,615		$	23,539
Nonperforming loans to loans, before allowance for loan losses		0.44	%		0.55	%		0.39	%		0.40	%
Nonperforming loans and repossessed assets to loans, before allowance for loan losses		0.53	%		0.68	%		0.47	%		0.49	%

The ~~$239,000 decrease~~$1.3 million increase in nonaccrual loans during ~~2022~~2023 resulted from the net of ~~$6,148,000~~$5.5 million of loans put on nonaccrual status offset by ~~$5,752,000~~$3.2 million of loans becoming current or paid-off, ~~$330,000~~$0.6 million of loans transferred to other real estate and ~~$305,000~~$0.2 million of loans charged off. The following table summarizes the composition of nonaccrual loans (dollars in thousands):


	September 30, 2022					December 31, 2021					June 30, 2023					December 31, 2022
	Balance		% of Total			Balance		% of Total			Balance		% of Total			Balance		% of Total
Construction and land development	$	14		0.1	%	$	25		0.1	%	$	—		—	%	$	14		0.1	%
Agricultural real estate		1,347		7.5	%		336		1.9	%		1,237		7.2	%		1,258		7.9	%
1-4 family residential properties		4,222		23.6	%		5,252		29.0	%		4,669		27.0	%		4,943		31.0	%
Multifamily residential properties		1,238		6.9	%		1,982		11.0	%		1,124		6.5	%		672		4.2	%
Commercial real estate		7,970		44.7	%		7,920		43.7	%		9,018		52.1	%		7,640		47.9	%
Loans secured by real estate		14,791		82.8	%		15,515		85.7	%		16,048		92.8	%		14,527		91.0	%
Agricultural loans		856		4.8	%		560		3.1	%		152		0.9	%		57		0.4	%
Commercial and industrial loans		1,872		10.5	%		1,851		10.2	%		816		4.7	%		1,098		6.9	%
Consumer loans		347		1.9	%		179		1.0	%		282		1.6	%		274		1.7	%
Total loans	$	17,866		100.0	%	$	18,105		100.0	%	$	17,298		100.0	%	$	15,956		100.0	%

Interest income that would have been reported if nonaccrual and restructured loans had been performing totaled ~~$168,000~~$0.1 million and ~~$407,000~~$0.1 million for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, ~~and 2021,~~ respectively.

The ~~$688,000~~$0.4 million decrease in repossessed assets during the first ~~nine~~six months of ~~2022~~2023 resulted from ~~$469,000~~$0.7 million of additional assets repossessed and ~~$904,000~~$0.9 million of repossessed assets sold, ~~$235,000~~$0.2 million of writedowns, and approximately ~~$18,000~~$0 of change in fair value premiums and discounts. The following table summarizes the composition of repossessed assets (dollars in thousands):


	September 30, 2022					December 31, 2021					June 30, 2023					December 31, 2022
	Balance		% of Total			Balance		% of Total			Balance		% of Total			Balance		% of Total
Construction and land development	$	2,764		63.8	%	$	3,004		59.9	%	$	2,688		67.6	%	$	2,763		63.2	%
1-4 family residential properties		12		0.3	%		12		0.2	%		—		—	%		108		2.5	%
Commercial real estate		1,546		35.7	%		1,968		39.2	%		1,290		32.4	%		1,390		31.8	%
Total real estate		4,322		99.8	%		4,984		99.3	%		3,978		100.0	%		4,261		97.5	%
Consumer loans		9		0.2	%		35		0.7	%		—		—	%		108		2.5	%
Total repossessed collateral	$	4,331		100.0	%	$	5,019		100.0	%	$	3,978		100.0	%	$	4,369		100.0	%

Repossessed assets sold during the first ~~nine~~six months of ~~2022~~2023 resulted in net gains of ~~$29,000~~$0.1 million related to real estate asset sales and net losses of ~~$1,000~~$21,000 related to other asset sales. The Company also recognized ~~$61,000~~no deferred losses and recorded $0.2 million of ~~deferred gains and $236,000 of writedowns.~~writedowns on four real estate properties owned. Repossessed assets sold during the same period in ~~2021~~2022 resulted in net ~~losses~~gains of ~~$575,000, of which $576,000 of net losses was~~$27,000 related to real estate asset sales and ~~$1,000 of~~ net gains ~~was~~of $1,000 related to other ~~repossessed assets.~~asset sales. The company also recognized $0.1 million of deferred gains and recorded $0.2 million of writedowns on real estate properties owned.

Loan Quality and Allowance for Credit Losses

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

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

Management recognizes there are risk factors that are inherent in the Company’s loan portfolio. All financial institutions face risk factors in their loan portfolios because risk exposure is a function of the business. The Company’s operations (and therefore its loans) are concentrated in east central Illinois, an area where agriculture is the dominant industry. Accordingly, lending and other business relationships with agriculture-based businesses are critical to the Company’s success. At ~~September~~June 30, ~~2022,~~2023, the Company’s loan portfolio included ~~$520.9~~$540.5 million of loans to borrowers whose businesses are directly related to agriculture. Of this amount, ~~$397.5~~$417.6 million was concentrated in other grain farming. Total loans to borrowers whose businesses are directly related to agriculture ~~increased $90.2~~decreased $36.6 million from ~~$430.8~~$577.2 million at December 31, ~~2021~~2022 while loans concentrated in other grain farming ~~increased $100.1~~decreased $27.7 million from ~~$297.4~~$445.2 million at December 31, ~~2021.~~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 ~~$209.4~~$215.2 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 ~~$911.0~~$991.1 million of loans to lessors of non-residential buildings, and ~~$470.4~~$473.7 million of loans to lessors of residential buildings and dwellings.

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

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

5754

Analysis of the allowance for credit losses as of ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, and of changes in the allowance for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, is as follows (dollars in thousands):


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
	2022			2021			2022			2021			2023			2022			2023			2022
Average loans outstanding, net of unearned income	$	4,481,593		$	3,873,035		$	4,332,925		$	3,726,531		$	4,777,319		$	4,481,593		$	4,782,757		$	4,332,925
Allowance-prior year end of period														58,223			58,474			59,093			54,655
Allowance - beginning of period		59,075			54,597			54,655			41,910			58,223			58,474			59,093			54,655
Initial allowance on loans purchased with credit deterioration		—			—			863			2,074			—			—			—			863
Charge-offs:
Construction and land development		—			—			2			23			14			—			14			2
1-4 family residential		45			45			186			241			16			69			56			141
Commercial real estate		7			55			414			535			25			68			25			407
Agricultural		—			—			93			—			276			93			276			93
Commercial and industrial		389			1,600			424			1,686			49			32			62			35
Consumer		392			376			1,059			1,008			200			309			627			667
Total charge-offs		833			2,076			2,178			3,493			580			571			1,060			1,345
Recoveries:
'Construction and land development		100			—			100			—
1-4 family residential		19			108			264			134			78			42			102			245
Commercial real estate		8			23			367			45			327			12			331			359
Agricultural		38			—			38			1			7			—			10			—
Commercial and industrial		63			24			187			64			37			63			293			124
Consumer		165			204			480			569			169			148			309			315
Total recoveries		393			359			1,436			813			618			265			1,045			1,043
Net charge-offs (recoveries)		440			1,717			742			2,680			(38	)		306			15			302
Provision for loan losses		142			1,103			4,001			12,679			458			907			(359	)		3,859
Allowance-end of period	$	58,777		$	53,983		$	58,777		$	53,983		$	58,719		$	59,075		$	58,719		$	59,075
Ratio of annualized net charge-offs to average loans		0.04	%		0.18	%		0.02	%		0.10	%		—	%		0.03	%		—	%		0.01	%
Ratio of allowance for credit losses to loans outstanding (at amortized cost)		1.25	%		1.37	%		1.25	%		1.37	%		1.22	%		1.27	%		1.22	%		1.27	%
Ratio of allowance for credit losses to nonperforming loans		282	%		195	%		282	%		195	%		315	%		296	%		315	%		296	%

The increase in the allowance for credit losses to nonperforming loans ratio is primarily due to a decline in nonperforming loans at ~~September~~June 30, ~~2022~~2023 compared to ~~September~~June 30, 2021. The decrease in allowance for credit losses is primarily due to the day one provision required to be recorded in the 2021 acquisition of loans with Providence Bank which was greater than the day one provision required for the 2022 acquisition of loans with Jefferson Bank.2022.

During the first ~~nine~~six months of ~~2022,~~2023, the Company had net charge offs of ~~$742,000~~$15,000 compared to net ~~charge-offs~~charge offs of ~~$2,680,000~~$0.3 million in ~~2021.~~2022. During the first ~~nine~~six months of 2023, there were one agricutural loan to one borrower totaling $0.2 million. During the first six months of 2022, there were significant charge-offs of two commercial real estate ~~loans of one borrower totaling $271,000, and one commercial operating loan totaling $300,000. During the first nine months of 2021, there were significant charge-offs of one commercial real estate~~ loan to one borrower totaling ~~$480,000 and one commercial loan to a single borrower totaling $1,572,000.~~$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 ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 and for the year ended December 31, ~~2021~~2022 (dollars in thousands):


	Nine months ended September 30, 2022					Nine months ended September 30, 2021					Year ended December 31, 2021					Six months ended June 30, 2023					Six months ended June 30, 2022					Year ended December 31, 2022
	Average Balance		Weighted Average Rate			Average Balance		Weighted Average Rate			Average Balance		Weighted Average Rate			Average Balance		Weighted Average Rate			Average Balance		Weighted Average Rate			Average Balance		Weighted Average Rate
Demand deposits:
Non-interest-bearing	$	1,370,701	—%			$	1,126,464	—%			$	1,164,877	—%			$	1,248,710	—%			$	1,346,645	—%			$	1,356,912	—%
Interest-bearing		2,603,995		0.34	%		2,130,511		0.19	%		2,217,281		0.19	%		2,410,582		1.60	%		2,633,667		0.24	%		2,598,480		0.53	%
Savings		672,484		0.08	%		608,844		0.08	%		611,379		0.08	%		629,829		0.11	%		671,447		0.07	%		666,334		0.09	%
Time deposits		644,840		0.52	%		695,536		0.68	%		671,056		0.64	%		842,110		2.36	%		630,940		0.42	%		655,240		0.69	%
Total average deposits	$	5,292,020		0.24	%	$	4,561,355		0.21	%	$	4,664,593		0.19	%	$	5,131,231		1.16	%	$	5,282,699		0.18	%	$	5,276,966		0.36	%

During the first ~~nine~~six months of ~~2022,~~2023, the average balance of deposits ~~increased~~decreased by ~~$0.6 billion~~$145.7 million from the average balance for the year ended December 31, ~~2021.~~2022. Average non-interest-bearing deposits ~~increased~~decreased by ~~$205.8~~$108.2 million, average interest-bearing balances ~~increased~~decreased by ~~$386.7~~$187.9 million, savings account balances ~~increased $61.1~~decreased $36.5 million and balances of time deposits ~~decreased $26.2~~increased $186.9 million. ~~These increases were primarily due to deposits added~~A majority of the overall deposit decline in the ~~acquisition~~period was attributable to one customer. As previously mentioned, the Company received approximately $225 million of ~~Jefferson Bank offset by maturing time deposits.~~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 first quarter of 2023. 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 following table sets forth the high and low month-end balances for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 and for the year ended December 31, ~~2021~~2022 (in thousands):


	Nine months ended September 30, 2022		Nine months ended September 30, 2021		Year ended December 31, 2021		Six months ended June 30, 2023		Six months ended June 30, 2022		Year ended December 31, 2022
High month-end balances of total deposits	$	5,487,305	$	4,988,562	$	5,000,084	$	5,219,585	$	5,487,305	$	5,487,305
Low month-end balances of total deposits		4,904,973		3,725,741		3,725,741		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~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):

~~thousands):~~


	June 30, 2023		December 31, 2022
3 months or less	$	129,654	$	80,856
Over 3 through 6 months		153,495		31,771
Over 6 through 12 months		287,620		127,405
Over 12 months		172,274		183,597
Total	$	743,043	$	423,629

September 30, 2022

December 31, 2021

3 months or less

$
84,822

$
86,790

Over 3 through 6 months

66,183

57,777

Over 6 through 12 months

99,517

82,644

Over 12 months

143,651

75,568

Total

$
394,173

$
302,779

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~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 is presented below (dollars in thousands):


	September 30, 2022			December 31, 2021			June 30, 2023			December 31, 2022
Securities sold under agreements to repurchase	$	220,707		$	146,268		$	209,170		$	221,414
Federal Home Loan Bank advances:
FHLB – overnite								25,000			65,000
Fixed term – due in one year or less		135,063			25,113			35,000			110,040
Fixed term – due after one year		41,168			61,333			389,979			290,031
Other borrowings:
Federal funds purchased		5,000			—
Subordinated debt		94,515			94,400			94,632			94,553
Junior subordinated debentures		19,322			19,195			19,448			19,364
Total	$	515,775		$	346,309		$	773,229		$	800,402
Average interest rate at end of period		2.26	%		1.78	%		3.38	%		2.52	%

Maximum outstanding at any month-end:
Securities sold under agreements to repurchase	$	225,707		$	212,503		$	231,650		$	257,061
Federal Home Loan Bank advances:
Overnight		310,000			—
FHLB – overnite								130,000			310,000
Fixed term – due in one year or less		145,092			30,180			105,024			160,048
Fixed term – due after one year		181,203			97,877			415,005			290,031
Other borrowings:
Federal funds purchased		10,000			—			—			10,000
Subordinated debt		94,515			94,400			94,632			94,553
Junior subordinated debentures		19,322			19,195			19,448			19,364

Averages for the period (YTD):
Securities sold under agreements to repurchase	$	186,524		$	173,762		$	228,861		$	202,242
Federal Home Loan Bank advances:
Overnight		88,478			—
FHLB – overnite								72,210			100,084
Fixed term – due in one year or less		76,861			22,751			93,352			94,247
Fixed term – due after one year		69,553			84,766			347,830			82,070
Other borrowings:
Federal funds purchased		553			—			387			481
Loans due in one year or less		18			—			—			14
Subordinated debt		94,452			94,321			94,587			94,471
Junior subordinated debentures		19,252			19,105			19,406			19,275
Total	$	535,691		$	394,705		$	856,633		$	592,884
Average interest rate during the period		1.74	%		1.58	%		3.49	%		2.16	%

Securities sold under agreements to repurchase decreased ~~$74.4~~$12.2 million during the first ~~nine~~six months of ~~2021~~2023 primarily due to the cash flow needs of various customers. FHLB advances represent borrowings by First Mid Bank to economically fund loan demand. At ~~September~~June 30, ~~2022~~2023 the fixed term advances, ~~before net premiums of $374,000,~~ consisted of ~~$175.9~~$449.7 million as follows:


Advance		Term (in years)	Interest Rate	Maturity Date
$	25,000,000	overnight	4.86%	July 1, 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
	25,000,000	3.0	4.40%	June 15, 2026
	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
	25,000,000	5.0	3.67%	June 15, 2028
	25,000,000	5.0	3.71%	June 29, 2028
	25,000,000	5.0	3.82%	June 29, 2028
	25,000,000	5.0	3.95%	June 29, 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

The Company is party to a revolving credit agreement with The Northern Trust Company in the amount of $15 million. There was no balance on this line of credit as of ~~September~~June 30, ~~2022.~~2023. This loan was renewed on April ~~8, 2022~~7, 2023 for one year as a revolving credit agreement. The interest rate is floating at 2.25% over the federal funds rate. The Company and First Mid Bank were in compliance with the existing covenants at ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, and December 31, ~~2021.~~2022.

On October 6, 2020, the Company issued 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 Indenture, dated as of October 6, 2020 (the “Base Indenture”), between the Company and U.S. Bank National Association, as trustee (the “Trustee”), as supplemented by the First Supplemental Indenture, dated as of October 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 the Notes and provides that the Notes are unsecured, subordinated debt obligations of the Company and will mature on October 15, 2030. From and including the date of issuance to, but excluding October 15, 2025, the 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 Term SOFR plus a spread of 383 basis points, 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 on any interest payment date thereafter, redeem the Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. The Company may also redeem the Notes at 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 principal amount of the 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 owned unconsolidated subsidiary of the Company, as part of a pooled offering. The Company established Trust II for the purpose of issuing the trust preferred securities. The $10 million in proceeds from the trust preferred issuance and an additional $310,000 for the Company’s investment in common equity of Trust II, a total of $10,310 000, was invested in junior subordinated debentures of the Company. The underlying junior subordinated debentures issued by the Company to Trust II mature in 2036, bore interest at a fixed rate of 6.98% paid quarterly until June 15, 2011 and then converted to floating rate (LIBOR plus 160 basis points, ~~4.89%~~7.15% and ~~1.80%~~6.37% at ~~September~~June 30, ~~2022~~2023 and

December 31, ~~2021,~~2022, respectively).

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 ~~(5.14%~~(7.40% and ~~2.05%~~6.47% at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~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 ~~(4.99%~~(7.25% and ~~1.90%~~6.62% at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively) and resets quarterly.

The trust preferred securities issued by Trust II, CLST I and FBTCST 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 ofTier 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.~~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 securitiesissued before May 19, 2010. New issuances of trust preferred securities, however, would not count as Tier 1 regulatory capital.~~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.” The rules 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. The Company does not currently anticipate that the Volcker Rule will have a material effect on the operations of the Company or First Mid Bank. 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- 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.

6259

In the banking industry, a traditional way to measure potential net interest income exposure to changes in interest rates is through a technique known as “static GAP” analysis which measures the cumulative differences between the amounts of assets and liabilities maturing or repricing at various intervals. By comparing the volumes of interest-bearing assets and liabilities that have contractual maturities and repricing points at various times in the future, management can gain insight into the amount of interest rate risk embedded in the balance sheet. The following table sets forth the Company’s interest rate repricing GAP for selected maturity periods at ~~September~~June 30, ~~2022~~2023 (dollars in thousands):


	Rate Sensitive Within																						Rate Sensitive Within
	1 years			1-2 years			2-3 years			3-4 years			4-5 years			Thereafter			Total		Fair Value		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	$	19,824		$	—		$	—		$	—		$	—		$	—		$	19,824	$	19,824	$	40,709		$	—		$	—		$	—		$	—		$	—		$	40,709	$	40,709
Certificates of deposit investments		980			490			—		—				—			—			1,470		1,470		245			1,225			245			—			—			—			1,715		1,715
Taxable investment securities		(4,199	)		98,016			103,842			79,842			98,949			575,251			951,701		951,701		(10,372	)		100,575			85,385			82,062			123,973			507,899			889,522		889,522
Nontaxable investment securities		(66,456	)		4,352			2,210			2,488			7,955			331,785			282,334		282,334		(50,878	)		3,188			1,955			9,877			6,468			307,581			278,191		278,191
Loans		1,712,746			593,399			663,323			636,292			763,967			350,563			4,720,290		4,460,130		1,746,296			742,285			770,776			953,327			334,565			266,167			4,813,416		4,458,811
Total	$	1,662,895		$	696,257		$	769,375		$	718,622		$	870,871		$	1,257,599		$	5,975,619	$	5,715,459	$	1,726,000		$	847,273		$	858,361		$	1,045,266		$	465,006		$	1,081,647		$	6,023,553	$	5,668,948
Interest-bearing liabilities:
Savings and NOW accounts	$	513,595		$	176,705		$	176,705		$	176,705		$	176,705		$	801,483		$	2,021,898	$	2,021,898	$	528,303		$	180,204		$	180,204		$	180,204		$	180,204		$	831,169		$	2,080,288	$	2,080,288
Money market accounts		869,506			85,450			85,450			85,450			85,450			231,754			1,443,060		1,443,060		561,021			52,005			52,005			52,005			52,005			154,218			923,259		923,259
Other time deposits		428,527			190,923			28,666			19,214			15,759			465			683,554		683,856		805,739			156,364			25,201			13,477			44,059			151			1,044,991		933,130
Short-term borrowings/debt		225,707			—			—			—			—			—			225,707		225,538		209,170			—			—			—			—			—			209,170		234,207
Long-term borrowings/debt		154,385			—			15,034			100,650			—			20,000			290,069		276,119		104,448			40,020			124,591			—			275,000			20,000			564,059		523,575
Total	$	2,191,720		$	453,078		$	305,855		$	382,019		$	277,914		$	1,053,702		$	4,664,288	$	4,650,471	$	2,208,681		$	428,593		$	382,001		$	245,686		$	551,268		$	1,005,538		$	4,821,767	$	4,694,459
Rate sensitive assets – rate sensitive liabilities	$	(528,825	)	$	243,179		$	463,520		$	336,603		$	592,957		$	203,897		$	1,311,331			$	(482,681	)	$	418,680		$	476,360		$	799,580		$	(86,262	)	$	76,109		$	1,201,786
Cumulative GAP		(528,825	)		(285,646	)		177,874			514,477			1,107,434			1,311,331							(482,681	)		(64,001	)		412,359			1,211,939			1,125,677			1,201,786
Cumulative amounts as % of total Rate sensitive assets		-8.8	%		4.1	%		7.8	%		5.6	%		9.9	%		3.4	%						-8.0	%		7.0	%		7.9	%		13.3	%		-1.4	%		1.3	%
Cumulative Ratio		-8.8	%		-4.8	%		3.0	%		8.6	%		18.5	%		21.9	%						-8.0	%		-1.1	%		6.8	%		20.1	%		18.7	%		20.0	%

The static GAP analysis shows that at ~~September~~June 30, ~~2022,~~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.

Capital Resources

At ~~September~~June 30, ~~2022,~~2023, the Company’s stockholders' equity ~~decreased $33.2~~increased $27.5 million or ~~5.2%~~4.3%, to ~~$600.7~~$660.7 million from ~~$633.9~~$633.2 million as of December 31, ~~2021.~~2022. During the first ~~nine~~six months of ~~2022,~~2023, net income contributed ~~$52.3~~$35.7 million to equity before the payment of dividends to stockholders. The change in market value of available-for-sale investment securities decreased stockholders' equity by ~~$166.8~~$0.1 million, net of tax. Dividends of ~~$13.1~~$9.4 million were paid during the first ~~nine~~six months of ~~2022. The acquisition of Delta also increased stockholders’ equity $92.1 million.~~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”), First Mid Bank follows similar minimum regulatory requirements established for 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 Company and its subsidiary bank to maintain minimum capital amounts and ratios (set forth in the table below). Management believes that, as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company and First Mid Bank met all capital adequacy requirements.~~requirements.~~

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.

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	Actual					Required Minimum For Capital Adequacy Purposes			To Be Well-Capitalized Under Prompt Corrective Action Provisions
September 30, 2022
												Amount		Ratio			Amount		Ratio	Amount		Ratio
June 30, 2023
Total capital (to risk-weighted assets)
Company	$	784,346		15.11	%	$	544,832	> 10.50%	N/A		N/A	$	821,793		15.67	%	$	550,706	> 10.50%	N/A		N/A
First Mid Bank		730,879		14.13	%		543,116	> 10.50%	$	517,254	> 10.00%		770,984		14.76	%		548,644	> 10.50%	$	522,518	> 10.00%
Tier 1 capital (to risk-weighted assets)
Company		637,196		12.28	%		441,055	> 8.50%	N/A		N/A		672,623		12.82	%		445,810	> 8.50%	N/A		N/A
First Mid Bank		678,244		13.11	%		439,666	> 8.50%		413,803	> 8.00%		716,446		13.71	%		444,140	> 8.50%		418,014	> 8.00%
Common equity tier 1 capital (to risk-weighted assets)
Company		617,874		11.91	%		363,221	> 7.00%	N/A		N/A		653,175		12.45	%		367,137	> 7.00%	N/A		N/A
First Mid Bank		678,244		13.11	%		362,078	> 7.00%		336,215	> 6.50%		716,446		13.71	%		365,763	> 7.00%		339,637	> 6.50%
Tier 1 capital (to average assets)
Company		637,196		9.52	%		267,799	> 4.00%	N/A		N/A		672,623		12.82	%		269,170	> 4.00%	N/A		N/A
First Mid Bank		678,244		10.17	%		266,839	> 4.00%		333,548	> 5.00%		716,446		13.71	%		268,535	> 4.00%		335,669	> 5.00%

December 31, 2021
December 31, 2022
Total capital (to risk-weighted assets)
Company	$	674,310		15.79	%	$	448,344	> 10.50%	N/A		N/A	$	801,966		15.20	%	$	554,164	>10.50%	N/A		N/A
First Mid Bank		624,150		14.67	%		446,711	> 10.50%	$	425,439	> 10.00%		745,624		14.18	%		552,161	>10.50%	$	525,868	> 10.00%
Tier 1 capital (to risk-weighted assets)
Company		534,277		12.51	%		362,945	> 8.50%	N/A		N/A		654,453		12.40	%		448,609	> 8.50%	N/A		N/A
First Mid Bank		578,517		13.60	%		361,623	> 8.50%		340,351	> 8.00%		692,664		13.17	%		446,987	> 8.50%		420,694	> 8.00%
Common equity tier 1 capital (to risk-weighted assets)
Company		515,082		12.06	%		298,896	> 7.00%	N/A		N/A		635,089		12.03	%		369,442	> 7.00%	N/A		N/A
First Mid Bank		578,517		13.60	%		297,807	> 7.00%		376,535	> 6.50%		692,664		13.17	%		368,107	> 7.00%		341,814	> 6.50%
Tier 1 capital (to average assets)
Company		534,277		9.05	%		236,151	> 4.00%	N/A		N/A		654,453		9.68	%		268,875	> 4.00%	N/A		N/A
First Mid Bank		578,517		9.83	%		135,337	> 4.00%		294,171	> 5.00%		692,664		10.22	%		270,990	> 4.00%		338,738	> 5.00%

The Company's risk-weighted assets, capital, and capital ratios for ~~September~~June 30, ~~2022~~2023 are computed in accordance with Basel III capital rules which were effective January 1, 2015. See heading "Basel III" in the Overview section of this report for a more detailed description of the Basel III rules. As of ~~September~~June 30, ~~2022,~~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.

6461

Stock Plans

Participants may purchase Company stock under the following ~~four~~three plans of the Company: The 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, ~~2021.~~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.

Following the stockholders’ approval at the 2021 annual meeting of the Company, a maximum of 399,983 shares of common stock may be issued under the SI Plan. The Company awarded ~~61,400~~59,950 and ~~30,125~~61,400 restricted stock awards during ~~2022~~2023 and ~~2021,~~2022, respectively and ~~37,150~~37,900 and ~~35,400~~37,150 as stock unit awards during 2023 and 2022, ~~and 2021,~~ respectively.

Employee Stock Purchase Plan

At the Annual Meeting of Stockholders held April 25, 2018, the stockholders approved the First Mid-Illinois Bancshares, Inc. EmployeeStockPurchasePlan(“ESPP”).TheESPPisintendedtopromotetheinterestsoftheCompanybyprovidingeligible employeeswiththeopportunitytopurchasesharesofcommonstockoftheCompanyata 15% 15% discountthroughpayrolldeductions. The ESPP is also intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code. A maximumof600,000sharesofcommonstockmaybeissuedundertheESPP.As of ~~September~~June 30, ~~2022, 46,114~~2023, 71,877 shares have been issued pursuant to the ESPP. During the ~~nine~~six months ended~~September~~ June 30, 2023 and 2022, ~~and 2021,~~ ~~14,430~~17,138 shares and ~~8,439~~8,326 shares, respectively,wereissued pursuant to theESPP.

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,~~2023, the Company repurchased ~~262~~170 shares. All of these shares were a result of shares withheld for taxes on vested employee stock incentives. The Company has approximately ~~$4.4~~$4.1 million in remaining capacity under its existing repurchase program.

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 Company at its discretion and will depend upon a variety of factors including economic and market conditions, price, 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’sother 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.~~Company.~~

Details of the Company's liquidity sources include:

•

First Mid Bank has $100 million available in overnight federal fund lines, including $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 $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 June 30, 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 June 30, 2023, the excess collateral at the FHLB would support approximately $565 million of additional advances for First Mid Bank.

•

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

•

In addition, as of June 30, 2023, the Company had a revolving credit agreement in the amount of $15 million with The Northern Trust Company with an outstanding balance of $0 million and $15 million in available funds. This loan was renewed on April 7, 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 unsecured. The Company and its subsidiary bank were in compliance with the existing covenants at June 30, 2023 and 2022 and December 31, 2022.

•

First Mid Bank has $100 million available in overnight federal fund lines, including $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 $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, 2022, 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, 2022, the excess collateral at the FHLB would support approximately $714 million of additional advances for First Mid Bank.

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

•

In addition, as of September 30, 2022, the Company had a revolving credit agreement in the amount of $15 million with The Northern Trust Company with an outstanding balance of $0 million and $15 million in available funds. This loan was renewed on April 8, 2022 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 the stock of First Mid Bank, including requirements for operating and capital ratios. The Company and its subsidiary bank were in compliance with the existing covenants at September 30, 2022 and 2021 and December 31, 2021.

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.

•

~~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~~June 30, ~~2022~~2023 (in thousands):


			Less than						More than				Less than						More than
	Total		1 year		1-3 years		3-5 years		5 years		Total		1 year		1-3 years		3-5 years		5 years
Time deposits	$	683,554	$	428,527	$	219,589	$	34,973	$	465	$	1,044,991	$	805,739	$	181,565	$	57,536	$	151
Debt		113,836		—		—		3,901		109,935		114,080		—		3,964		—		110,116
Other borrowing		396,939		355,770		15,033		6,136		20,000		659,149		294,170		69,979		275,000		20,000
Operating leases		18,586		2,924		4,993		3,994		6,675		17,181		3,073		4,735		3,845		5,528
Supplemental retirement		1,773		50		100		150		1,473		1,842		50		100		150		1,542
	$	1,214,688	$	787,271	$	239,715	$	49,154	$	138,548	$	1,837,243	$	1,103,032	$	260,343	$	336,531	$	137,337

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, net cash of ~~$54.3~~$38.2 million was provided by operating activities, ~~$105.0~~$57.2 million was provided by investing activities, and $73.5 million was used in ~~investing activities, and $43.1 million was provided by~~ financing activities. In total, cash and cash equivalents ~~decreased~~increased by ~~$7.6~~$21.8 million since year-end ~~2021~~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~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 were as follows (in thousands):


	September 30, 2022		December 31, 2021		June 30, 2023		December 31, 2022
Unused commitments and lines of credit:
Commercial real estate	$	154,998	$	118,190	$	164,202	$	147,702
Commercial operating		690,461		529,035		626,029		655,676
Home equity		61,842		59,422		65,671		63,570
Other		305,662		293,339		296,924		307,030
Total	$	1,212,963	$	999,986	$	1,152,826	$	1,173,978
Standby letters of credit	$	16,107	$	14,403	$	9,207	$	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.

~~requirements.~~

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

6764

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~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, ~~2021.~~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, ~~2021.~~2022.

ITEM 4. CONTROLS AND PROCEDURES

~~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.

6865

PART II

ITEM 1. LEGAL PROCEEDINGS

~~ITEM~~1.

~~LEGALPROCEEDINGS~~

From time to time the Company and its subsidiaries may be involved in litigation that the Company believes is 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, ~~2021.~~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
April 1, 2023 - April 30, 2023		—	$	—		—	$	4,061,000
May 1, 2023 - May 31, 2023		—		—		—		4,061,000
June 1, 2023 - June 30, 2023		—		—		—		4,061,000
Total		—	$	—		—	$	4,061,000

~~ITEM~~2.

~~UNREGISTEREDSALES~~OF~~EQUITYSECURITIESANDUSE~~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

Total

—

$
—

—

$
4,395,000

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

~~ITEM~~3.

~~DEFAULTS~~ ~~UPON SENIORSECURITIES~~

~~None.~~

~~ITEM~~4.

~~MINE SAFETYDISCLOSURES~~

Not applicable.

ITEM 5. OTHER INFORMATION

None of the Company's directors and officersadopted, modified or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company's fiscal quarter ended June 30, 2023 (each as defined in Item 408 of Regulation S-K under the Securities Exchange Act of 1934, as amended).

ITEM 6. EXHIBITS

~~ITEM~~5.

~~OTHERINFORMATION~~

~~None.~~

~~ITEM~~6.

~~EXHIBITS~~

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


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

~~31.1~~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 of2002
31.2
~~31.2~~	Certification pursuant to section 302 of the Sarbanes-Oxley Act of2002
32.1
~~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
~~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
~~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 ~~September~~June 30, ~~2022~~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.

~~SIGNATURES~~

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 BANCSHARES, INC.

(Registrant)

Date: ~~November~~August 8, ~~2022~~2023

/s/ Joseph R. Dively

Joseph R. Dively

President and Chief Executive Officer

/s/ Matthew K. Smith

Matthew K. Smith

Chief Financial Officer

	Nine months ended Sepetember 30,
(In thousands)	2022			2021
Cash flows from operating activities:
Net income	$	52,313		$	34,656
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		4,001			12,679
Depreciation, amortization and accretion, net		11,502			10,131
Change in cash surrender value of bank owned life insurance		(2,634	)		(2,211	)
Stock-based compensation expense		1,342			786
Operating lease payments		(2,286	)		(2,161	)
Gain on investment securities, net		(81	)		(88	)
Loss on sales and write downs of other real estate owned, net		103			6,870
Loss (gain) on sale of other assets		76			(154	)
Gain on sale of loans held for sale, net		(1,060	)		(3,426	)
(Increase) decrease in accrued interest receivable		(4,335	)		195
Increase (decrease) in accrued interest payable		1,207			(519	)
Origination of loans held for sale		(53,591	)		(113,630	)
Proceeds from sale of loans held for sale		56,932			117,083
(Increase) decrease in other investment		6			(442	)
Increase in other assets		(10,187	)		(18,326	)
Increase in other liabilities		952			5,236
Net cash provided by operating activities		54,260			46,679
Cash flows from investing activities:
Proceeds from maturities of certificates of deposit investments		1,225			245
Purchases of certificates of deposit investments		(245	)		(245	)
Proceeds from sales of securities available-for-sale		27,396			611
Proceeds from maturities of securities available-for-sale		117,799			182,803
Proceeds from maturities of securities held-to-maturity		5,000			—
Purchases of securities available-for-sale		(10,768	)		(552,294	)
Net (increase) decrease in loans		(309,664	)		16,683
Purchases of premises and equipment		(3,874	)		(2,367	)
Proceeds from sales of other real property owned		821			8,602
Investment in banked owned life insurance		—			(30,000	)
Net cash provided by acquisition		67,323			27,061
Net cash used in investing activities		(104,987	)		(348,901	)
Cash flows from financing activities:
Net increase (decrease) in deposits		(33,665	)		305,368
Increase in federal funds purchased		5,000			—
Increase (decrease) in repurchase agreements		38,916			(57,046	)
Proceeds from FHLB advances		365,000			5,000
Repayment of FHLB advances		(320,000	)		(14,000	)
Proceeds from issuance of common stock		1,008			1,724
Direct expenses related to capital transactions		(29	)		(144	)
Purchase of treasury stock		(11	)		—
Dividends paid on common stock		(13,140	)		(10,755	)
Net cash provided by financing activities		43,079			230,147
Decrease in cash and cash equivalents		(7,648	)		(72,075	)
Cash and cash equivalents at beginning of period		168,602			417,281
Cash and cash equivalents at end of period	$	160,954		$	345,206

	September 30, 2022					September 30, 2021
	Number of		Recorded		Type of	Number of		Recorded		Type of
	Modifications		Investment		Modifications	Modifications		Investment		Modifications
Construction and land development		—	$	—			1	$	492	(c)
Agricultural real estate		2		120	(b)		1		250	(b)
1-4 family residential properties		2	$	63	(b)(c)		2		323	(b)(c)
Commercial real estate		3		197	(b)		1		681	(b)
Loans secured by real estate		7		380			5		1,746
Agricultural loans		—		—			1		156	(b)
Commercial and industrial loans		1		35	(b)		6		287	(b)
Consumer loans		—		—			4		54	(b)
Other Loans		—		—			1		24	(b)
Total		8	$	415			17	$	2,267

Unallocated purchase price				$	12,248
Less purchase accounting adjustments:
Fair value of securities	$	264
Fair value of loans, net		(2,818	)
Fair value of other real estate owned		915
Fair value of premises and equipment		6,360
Fair value of time deposits		(2,081	)
Fair value of FHLB advances		(975	)
Core deposit intangible		2,025
Other assets		3,293
Other liabilities		(184	)
					6,799
				$	5,449

	Nine months ended September 30, 2021

Net interest income	$	131,713
Provision for loan losses		12,879
Non-interest income		53,504
Non-interest expense		124,133
Income before taxes		48,205
Income tax expense		11,052
Net income	$	37,153

Earnings per share
Basic	$	2.08
Diluted		2.08

Basic weighted average shares o/s		17,819,619
Diluted weighted average shares o/s		17,872,639

	Three months ended September 30, 2022 compared to 2021 Increase / (Decrease)									Nine months ended September 30, 2022 compared to 2021 Increase / (Decrease)
	Total									Total
	Change			Volume (1)			Rate (1)			Change			Volume (1)			Rate (1)
Earning assets:
Interest-bearing deposits	$	6		$	(810	)	$	816		$	(11	)	$	(478	)	$	467
Federal funds sold		38			—			38			45			3			42
Certificates of deposit investments		(5	)		(10	)		5			(13	)		(11	)		(2	)
Investment securities:
Taxable		1,145			300			845			4,101			2,841			1,260
Tax-exempt (2)		407			47			360			1,997			1,677			320
Loans (2) (3)		6,035			22,254			(16,219	)		12,846			26,201			(13,355	)
Total interest income	$	7,626		$	21,781		$	(14,155	)	$	18,965		$	30,233		$	(11,268	)
Interest-bearing liabilities:
Interest-bearing deposits
Demand deposits	$	2,393		$	113		$	2,280		$	3,605		$	792		$	2,813
Savings deposits		38			11			27			22			22			—
Time deposits		251			(16	)		267			(1,020	)		(241	)		(779	)
Securities sold under agreements to repurchase		376			19			357			453			8			445
FHLB advances		1,567			1,180			387			1,664			1,501			163
Federal funds purchased		1			5			—			6			6			—
Subordinated debt		1			1			—			4			4			—
Junior subordinated debentures		104			1			103			137			4			133
Total interest expense		4,731			1,314			3,421			4,871			2,096			2,775
Net interest income	$	2,895		$	20,467		$	(17,576	)	$	14,094		$	28,137		$	(14,043	)

	Maturity (1)
	One year or less(2)		Over 1 through 5 years		Over 5 years		Total
Construction and land development	$	45,056	$	58,207	$	39,538	$	142,801
Agricultural real estate		9,983		122,970		227,471		360,424
1-4 family residential properties		14,086		124,684		297,855		436,625
Multifamily residential properties		17,728		220,709		59,884		298,321
Commercial real estate		86,386		1,016,794		893,158		1,996,338
Loans secured by real estate		173,239		1,543,364		1,517,906		3,234,509
Agricultural loans		129,249		27,349		3,913		160,511
Commercial and industrial loans		347,743		432,628		283,662		1,064,033
Consumer loans		9,411		61,017		30,355		100,783
All other loans		33,747		25,012		101,695		160,454
Total loans	$	693,389	$	2,089,370	$	1,937,531	$	4,720,290