FMBH 10-Q Quarterly Report March 31, 2020

FMBH 10-Q Quarter ended March 31, 2020

Exhibits

Exhibits

FIRST MID BANCSHARES, INC.

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10-Q 1 fmbh-2020331x10q.htm 10-Q Document



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

FORM 10-Q

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

Commission file number 0-13368

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

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

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

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



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

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

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

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



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

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

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

As of May 4, 2020 , 16,702,484 common shares, $4.00 par value, were outstanding.

PART I



ITEM 1. FINANCIAL STATEMENTS
First Mid Bancshares, Inc.
Condensed Consolidated Balance Sheets	(Unaudited)
(In thousands, except share data)	March 31, 2020			December 31, 2019
Assets
Cash and due from banks:
Non-interest bearing	$	80,798		$	76,498
Interest bearing	100,302			7,656
Federal funds sold	927			926
Cash and cash equivalents	182,027			85,080
Certificates of deposit	4,380			4,625
Investment securities:
Available-for-sale, at fair value	617,801			686,048
Held-to-maturity, at amortized cost (estimated fair value of $24,806 and $69,572 at March 31, 2020 and December 31, 2019, respectively)	24,563			69,542
Loans held for sale	1,251			1,820
Loans	2,743,047			2,693,527
Less allowance for credit losses	(32,876		)	(26,911		)
Net loans	2,710,171			2,666,616
Interest receivable	15,422			15,577
Other real estate owned	2,784			3,644
Premises and equipment, net	59,359			59,491
Goodwill, net	104,992			104,992
Intangible assets, net	27,207			28,265
Bank owned life insurance	67,656			67,225
Right of use lease assets	16,542			17,006
Other assets	30,676			29,495
Total assets	$	3,864,831		$	3,839,426
Liabilities and Stockholders’ Equity
Deposits:
Non-interest bearing	$	642,384		$	633,331
Interest bearing	2,266,243			2,284,035
Total deposits	2,908,627			2,917,366
Securities sold under agreements to repurchase	231,649			208,109
Interest payable	2,029			2,261
FHLB borrowings	119,921			113,895
Other borrowings	5,000			5,000
Junior subordinated debentures	18,900			18,858
Lease liabilities	16,568			17,007
Other liabilities	29,086			30,321
Total liabilities	3,331,780			3,312,817
Stockholders’ Equity:
Common stock, $4 par value; authorized 30,000,000 shares; issued 17,316,886 and 17,287,882 shares in 2020 and 2019, respectively	71,268			71,152
Additional paid-in capital	296,853			295,925
Retained earnings	175,949			166,667
Deferred compensation	2,022			2,760
Accumulated other comprehensive income	5,209			8,360
Less treasury stock at cost, 614,403 shares in 2020 and 2019	(18,250		)	(18,255		)
Total stockholders’ equity	533,051			526,609
Total liabilities and stockholders’ equity	$	3,864,831		$	3,839,426

See accompanying notes to unaudited condensed consolidated financial statements.



First Mid Bancshares, Inc.
Condensed Consolidated Statements of Income (unaudited)
(In thousands, except per share data)	Three months ended March 31,
	2020			2019
Interest income:
Interest and fees on loans	$	30,027		$	32,104
Interest on investment securities	4,589			5,209
Interest on certificates of deposit investments	31			38
Interest on federal funds sold	2			3
Interest on deposits with other financial institutions	92			697
Total interest income	34,741			38,051
Interest expense:
Interest on deposits	3,861			4,378
Interest on securities sold under agreements to repurchase	194			260
Interest on FHLB borrowings	580			723
Interest on other borrowings	15			—
Interest on subordinated debentures	218			438
Total interest expense	4,868			5,799
Net interest income	29,873			32,252
Provision for loan losses	5,481			947
Net interest income after provision for loan losses	24,392			31,305
Other income:
Wealth management revenues	3,626			3,645
Insurance commissions	6,621			5,555
Service charges	1,778			1,802
Securities gains, net	531			54
Mortgage banking revenue, net	308			239
ATM / debit card revenue	1,987			2,016
Bank owned life insurance	431			430
Other	1,228			898
Total other income	16,510			14,639
Other expense:
Salaries and employee benefits	16,500			16,574
Net occupancy and equipment expense	4,242			4,455
Net other real estate owned expense	(46		)	53
FDIC insurance	93			279
Amortization of intangible assets	1,295			1,356
Stationery and supplies	268			287
Legal and professional	1,398			1,194
ATM / debit card	605			803
Marketing and donations	481			454
Other	2,895			2,855
Total other expense	27,731			28,310
Income before income taxes	13,171			17,634
Income taxes	3,172			4,318
Net income	$	9,999		$	13,316
Per share data:
Basic net income per common share	$	0.60		$	0.80
Diluted net income per common share	0.60			0.80

See accompanying notes to unaudited condensed consolidated financial statements.



First Mid Bancshares, Inc.
Condensed Consolidated Statements of Comprehensive Income (unaudited)
(in thousands)	Three months ended March 31,
	2020			2019
Net income	$	9,999		$	13,316
Other Comprehensive Income (Loss)
Unrealized gains (losses) on available-for-sale securities, net of taxes of $1,139 and $(3,123) for three months ended March 31, 2020 and 2019, respectively.	(2,789		)	7,645
Amortized holding losses on held-to-maturity securities transferred from available-for-sale, net of taxes of $(5) and$(8) for three months ended March 31, 2020 and 2019, respectively.	15			21
Less: reclassification adjustment for realized gains included in net income, net of taxes of $154 and $16 for three months ended March 31, 2020 and 2019, respectively.	(377		)	(38		)
Other comprehensive income (loss), net of taxes	(3,151		)	7,628
Comprehensive income	$	6,848		$	20,944

See accompanying notes to unaudited condensed consolidated financial statements.



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

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

See accompanying notes to unaudited condensed consolidated financial statements.



First Mid Bancshares, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)	Three months ended March 31,
(In thousands)	2020			2019
Cash flows from operating activities:
Net income	$	9,999		$	13,316
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	5,481			947
Depreciation, amortization and accretion, net	2,721			2,430
Change in cash surrender value of bank owned life insurance	(431		)	(430		)
Stock-based compensation expense	204			128
Operating lease payments	(677		)	(664		)
Gains on investment securities, net	(531		)	(54		)
Gain on sales of repossessed assets, net	(162		)	(5		)
Gain on sale of premises and equipment	(26		)	—
Gains on sale of loans held for sale, net	(353		)	(180		)
Decrease in accrued interest receivable	155			808
(Decrease) increase in accrued interest payable	(164		)	493
Origination of loans held for sale	(20,039		)	(12,098		)
Proceeds from sale of loans held for sale	20,961			12,553
(Increase) decrease in other assets	(937		)	507
Increase (decrease) in other liabilities	413			(333		)
Net cash provided by operating activities	16,614			17,418
Cash flows from investing activities:
Proceeds from maturities of certificates of deposit investments	1,225			249
Purchases of certificates of deposit investments	(980		)	—
Proceeds from sales of securities available-for-sale	—			12,631
Proceeds from maturities of securities available-for-sale	108,666			23,020
Proceeds from maturities of securities held-to-maturity	45,000			—
Purchases of securities available-for-sale	(44,830		)	(28,431		)
Net (increase) decrease in loans	(50,059		)	45,188
Purchases of premises and equipment	(786		)	(987		)
Proceeds from sales of other real property owned	1,211			354
Net cash provided by investing activities	59,447			52,024
Cash flows from financing activities:
Net (decrease) increase in deposits	(8,739		)	57,527
Decrease in federal funds purchased	(5,000		)	—
Increase (decrease) in repurchase agreements	23,540			(34,570		)
Proceeds from FHLB advances	15,000			—
Repayment of FHLB advances	(9,000		)	—
Proceeds from long-term debt	5,000			—
Repayment of long-term debt	—			(1,467		)
Proceeds from issuance of common stock	85			216
Net cash provided by financing activities	20,886			21,706
Increase in cash and cash equivalents	96,947			91,148
Cash and cash equivalents at beginning of period	85,080			141,400
Cash and cash equivalents at end of period	$	182,027		$	232,548



First Mid Bancshares, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)	Three months ended March 31,
(In thousands)	2020		2019
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	5,100	$	5,391
Income taxes	—		2,035
Supplemental disclosures of noncash investing and financing activities
Loans transferred to other real estate	184		1,630
Initial recognition of right-of-use assets	—		14,116
Initial recognition of lease liabilities	—		14,116
Net tax benefit related to option and deferred compensation plans	22		—

See accompanying notes to unaudited condensed consolidated financial statements.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1 -- Basis of Accounting and Consolidation

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

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

COVID-19

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

Website

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

General Litigation

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

Loan Purchase

On April 21, 2020, First Mid Bank completed an acquisition of loans in the St. Louis metro market totaling $183 million . There were no loans determined to be purchased with deteriorated credit.

Stock Repurchase Plan

On August 16, 2019, the Company adopted a repurchase plan under Rule 10b5-1 and Rule 10b-18 of the Exchange Act. The Company implemented the repurchase plan in connection with its previously announced stock repurchase program. Under the repurchase plan, up to approximately $6.2 million worth of shares of the Company’s common stock could have been repurchased. The 10b5-1 plan expired in early 2020, and there were no shares repurchased under this plan during 2020. During 2019, the Company repurchased approximately $1.1 million in common stock, or 35,427 shares. The Company has approximately $4.9 million in remaining capacity under its existing repurchase program.

Stock Plans

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

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

Employee Stock Purchase Plan

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

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

Captive Insurance Company

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

Bank Owned Life Insurance

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

Revenue Recognition

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

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

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

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

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

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

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

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

Leases

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

Accumulated Other Comprehensive Income (Loss)

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



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



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

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



	Amounts Reclassified from Other Comprehensive Income						Affected Line Item in the Statements of Income
	Amounts Reclassified from Other Comprehensive Income
	Three months ended March 31,
	2020			2019
Realized gains on available-for-sale securities	$	531		$	54		Securities gains, net
Tax effect	(154		)	(16		)	Income taxes
Total reclassifications out of accumulated other comprehensive income	$	377		$	38		Net reclassified amount

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

Adoption of New Accounting Guidance

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

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

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

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

Management formed an internal, cross functional committee in 2017 to evaluate implementation steps and assess the impact ASU 2016-13 would have on the Company’s consolidated financial statements. The committee assigned roles and responsibilities, key tasks to complete, and established a general time line for implementation. The Company also engaged an outside consultant to assist with the methodology review and data validation, as well as other key aspects of implementing the standard. The committee met periodically to discuss the latest developments and ensure progress was being made. In addition, the committee kept current on evolving interpretations and industry practices related to ASU 2016-13. The committee evaluated and validated data resources and different loss methodologies. Key implementation activities for 2019 included finalization of models, establishing processes and controls, development of supporting analytics and documentation, policies and disclosure, and implementing parallel processing.

The Company adopted ASU 2016-13 using the modified retrospective method for financial assets measured at amortized cost effective January 1, 2020. Results for the periods beginning after January 1, 2020 are presented under ASU 2016-13 while prior period amounts are reported in accordance with the previously applicable accounting standards. The Company recorded a reduction to retained earnings of approximately $717,000 upon adoption of ASU 2016-13. The transition adjustment included an increase to the allowance for credit losses on loans of $1.7 million and an increase to the allowance for credit losses on off-balance sheet credit exposure of $69,000 . There was no allowance for credit losses recorded for held-to-maturity debt securities. The transition adjustment included corresponding increases in deferred tax assets.

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

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



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

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



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

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 -month period ended March 31, 2020 and 2019 were as follows:



	Three months ended March 31,
	2020		2019
Basic Net Income per Common Share
Available to Common Stockholders:
Net income	$	9,999,000	$	13,316,000
Weighted average common shares outstanding	16,693,183		16,665,999
Basic earnings per common share	$	0.60	$	0.80

Diluted Net Income per Common Share
Available to Common Stockholders:
Net income applicable to diluted earnings per share	$	9,999,000	$	13,316,000
Weighted average common shares outstanding	16,693,183		16,665,999
Dilutive potential common shares:
Restricted stock awarded	46,908		38,780
Dilutive potential common shares	46,908		38,780
Diluted weighted average common shares outstanding	16,740,091		16,704,779
Diluted earnings per common share	$	0.60	$	0.80

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

Note 3 -- Investment Securities

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



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
March 31, 2020
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations & agencies	$	56,067	$	716	$	(94	)	$	56,689
Obligations of states and political subdivisions	167,146		260		(3,904		)	163,502
Mortgage-backed securities: GSE residential	385,194		10,717		(400		)	395,511
Other securities	2,028		112		(41		)	2,099
Total available-for-sale	$	610,435	$	11,805	$	(4,439	)	$	617,801
Held-to-maturity:
U.S. Treasury securities and obligations of U.S. government corporations & agencies	$	24,563	$	243	$	—		$	24,806

December 31, 2019
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations & agencies	$	106,428	$	952	$	(60	)	$	107,320
Obligations of states and political subdivisions	172,460		5,990		(17		)	178,433
Mortgage-backed securities: GSE residential	391,307		5,331		(512		)	396,126
Other securities	4,028		141		—			4,169
Total available-for-sale	$	674,223	$	12,414	$	(589	)	$	686,048
Held-to-maturity:
U.S. Treasury securities and obligations of U.S. government corporations & agencies	$	69,542	$	99	$	(69	)	$	69,572

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

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



	Three months ended March 31,
	2020		2019
Gross gains	$	531	$	84
Gross losses	—		(30		)

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 March 31, 2020 and the weighted average yield for each range of maturities (dollars in thousands):



	One year or less			After 1 through 5 years			After 5 through 10 years			After ten years			Total
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	41,026		$	15,663		$	—		$	—		$	56,689
Obligations of state and political subdivisions	26,677			69,512			65,164			2,149			163,502
Mortgage-backed securities: GSE residential	73,878			310,186			11,447			—			395,511
Other securities	—			1,759			—			340			2,099
Total available-for-sale investments	$	141,581		$	397,120		$	76,611		$	2,489		$	617,801
Weighted average yield	2.42		%	2.67		%	2.93		%	2.88		%	2.65		%
Full tax-equivalent yield	2.63		%	2.87		%	3.93		%	3.79		%	2.96		%
Held to Maturity:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	19,536		$	5,027		$	—		$	—		$	24,563
Weighted average yield	1.93		%	2.06		%	—		%	—		%	1.96		%
Full tax-equivalent yield	1.93		%	2.06		%	—		%	—		%	1.96		%

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

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

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



	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
March 31, 2020
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	5,802	$	(94	)	$	—	$	—		$	5,802	$	(94	)
Obligations of states and political subdivisions	119,614		(3,904		)	—		—			119,614		(3,904		)
Mortgage-backed securities: GSE residential	51,736		(315		)	3,679		(85		)	55,415		(400		)
Other securities	709		(41		)	—		—			709		(41		)
Total	$	177,861	$	(4,354	)	$	3,679	$	(85	)	$	181,540	$	(4,439	)
December 31, 2019
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	23,375	$	(60	)	$	—	$	—		$	23,375	$	(60	)
Obligations of states and political subdivisions	3,469		(16		)	347		(1		)	3,816		(17		)
Mortgage-backed securities: GSE residential	67,080		(322		)	20,888		(190		)	87,968		(512		)
Total	$	93,924	$	(398	)	$	21,235	$	(191	)	$	115,159	$	(589	)
Held-to-maturity:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	14,996	$	(25	)	$	24,565	$	(44	)	$	39,561	$	(69	)

U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies. At March 31, 2020 and December 31, 2019 , there were no available-for sale U.S. Treasury securities and obligations of U.S. government corporations and agencies in a continuous unrealized loss position for twelve months or more. At December 31, 2019 , there were four held-to-maturity U.S. Treasury securities and obligations of U.S. government corporations and agencies with a fair value of $24,565,000 and unrealized losses of $44,000 in a continuous unrealized loss position for twelve months or more.

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

Mortgage-backed Securities: GSE Residential. At March 31, 2020 , there were five mortgage-backed securities with a fair value of $3,679,000 and unrealized losses of $85,000 in a continuous unrealized loss position for twelve months or more. At December 31, 2019 , there were fourteen mortgage-backed securities with a fair value of $20,888,000 and unrealized losses of $190,000 in a continuous unrealized loss position for twelve months or more.

The Company does not believe any other individual unrealized loss as of March 31, 2020 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 Loan 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 March 31, 2020 and December 31, 2019 follows (in thousands):



	March 31, 2020		December 31, 2019
Construction and land development	$	123,346	$	94,462
Agricultural real estate	242,541		240,481
1-4 Family residential properties	325,146		336,553
Multifamily residential properties	140,536		155,132
Commercial real estate	1,003,021		997,175
Loans secured by real estate	1,834,590		1,823,803
Agricultural loans	139,014		136,023
Commercial and industrial loans	565,714		528,987
Consumer loans	82,330		83,544
All other loans	123,482		126,807
Total Gross loans	2,745,130		2,699,164
Less: Loans held for sale	1,251		1,820
	2,743,879		2,697,344
Less:
Net deferred loan fees, premiums and discounts	832		3,817
Allowance for credit losses	32,876		26,911
Net loans	$	2,710,171	$	2,666,616

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

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

Most of the Company’s business activities are with customers located near the Company's branch locations in Illinois and Missouri. At March 31, 2020 , the Company’s loan portfolio included $381.6 million of loans to borrowers whose businesses are directly related to agriculture. Of this amount, $309.4 million was concentrated in corn and other grain farming. Total loans to borrowers whose businesses are directly related to agriculture increased $5.2 million from $376.4 million at December 31, 2019 due to seasonal timing of cash flow requirements. Loans concentrated in corn and other grain farming increased $7.9 million from $301.5 million at December 31, 2019 . 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, however these could result in an increase in the level of problem agriculture loans and potentially result in loan losses within the agricultural portfolio.

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

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

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

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

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

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

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

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

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

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, 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 impaired loans separately from non-impaired loans.

Impaired loans

The Company individually evaluates certain loans for impairment. In general, these loans have been internally identified via the Company’s loan grading system as credits requiring management’s attention due to underlying problems in the borrower’s business or collateral concerns. This evaluation considers expected future cash flows, the value of collateral and also other factors that may impact the borrower’s ability to make payments when due. For loans greater than $250,000 , and loans identified as troubled debt restructurings, impairment is individually measured each quarter using one of three alternatives: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price, if available; or (3) the fair value of the collateral less costs to sell for collateral dependent loans and loans for which foreclosure is deemed to be probable. A specific allowance is assigned when expected cash flows or collateral are less than the carrying amount of the loan. The carrying value of the loan reflects reductions from prior charge-offs.

Non-Impaired loans

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



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

Prior to the adoption of ASU 2016-13, the appropriate level of the allowance for loan losses for all non-impaired loans was based on a migration analysis of net losses over a rolling twelve quarter period by loan segment. A weighted average of the net losses was determined by assigning more weight to the most recent quarters in order to recognize current risk factors influencing the various segments of the loan portfolio more prominently than past periods. Due to weakened economic conditions during historical years, the Company established qualitative factor adjustments for each of the loan segments at levels above the historical net loss averages. Some of the economic factors included the potential for reduced cash flow for commercial operating loans from reduction in sales or increased operating costs, decreased occupancy rates for commercial buildings, reduced levels of home sales for commercial land developments, the uncertainty regarding grain prices and increased operating costs for farmers, and increased levels of unemployment and bankruptcy impacting consumer’s ability to pay. Each of these economic uncertainties was taken into consideration in developing the level of the allowance for loan losses. The following tables present the activity in the allowance for credit losses based on portfolio segment for the three -months ended March 31, 2019 and for the year ended December 31, 2019 (in thousands):



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



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

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

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

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

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



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

Credit Quality

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

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

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

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

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

The following tables present the credit risk profile of the Company’s loan portfolio based on risk rating category and year of origination as of March 31, 2020 (in thousands):



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

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



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

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



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

Impaired Loans

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

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

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



	March 31, 2020						December 31, 2019
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Recorded Balance		Unpaid Principal Balance		Specific Allowance
Loans with a specific allowance:
Construction and land development	$	540	$	540	$	269	$	256	$	256	$	—
Agricultural real estate	150		150		—		—		—		—
1-4 Family residential properties	5,449		5,668		203		5,154		5,351		182
Multifamily residential properties	3,133		3,133		17		4,254		4,254		19
Commercial real estate	6,494		6,998		1,029		5,904		6,408		587
Loans secured by real estate	15,766		16,489		1,518		15,568		16,269		788
Agricultural loans	279		852		—		85		669		8
Commercial and industrial loans	4,205		6,182		312		7,653		8,789		301
Consumer loans	139		139		1		134		134		1
Total loans	$	20,389	$	23,662	$	1,831	$	23,440	$	25,861	$	1,098
Loans without a specific allowance:
Construction and land development	$	39	$	39	$	—	$	41	$	41	$	—
Agricultural real estate	419		419		—		479		479		—
1-4 Family residential properties	3,333		4,001		—		3,719		4,263		—
Multifamily residential properties	44		44		—		—		—		—
Commercial real estate	1,463		1,540		—		1,721		1,724		—
Loans secured by real estate	5,298		6,043		—		5,960		6,507		—
Agricultural loans	583		10		—		724		140		—
Commercial and industrial loans	914		3,076		—		916		3,065		—
Consumer loans	357		784		—		391		713		—
Total loans	$	7,152	$	9,913	$	—	$	7,991	$	10,425	$	—
Total loans:
Construction and land development	$	579	$	579	$	269	$	297	$	297	$	—
Agricultural real estate	569		569		—		479		479		—
1-4 Family residential properties	8,782		9,669		203		8,873		9,614		182
Multifamily residential properties	3,177		3,177		17		4,254		4,254		19
Commercial real estate	7,957		8,538		1,029		7,625		8,132		587
Loans secured by real estate	21,064		22,532		1,518		21,528		22,776		788
Agricultural loans	862		862		—		809		809		8
Commercial and industrial loans	5,119		9,258		312		8,569		11,854		301
Consumer loans	496		923		1		525		847		1
Total loans	$	27,541	$	33,575	$	1,831	$	31,431	$	36,286	$	1,098

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



	For the three months ended
	March 31, 2020				March 31, 2019
	Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
Construction and land development	$	600	$	8	$	813	$	—
Agricultural real estate	1,202		—		1,239		—
1-4 Family residential properties	8,997		18		8,690		23
Multifamily residential properties	3,323		1		1,718		—
Commercial real estate	8,266		42		10,359		6
Loans secured by real estate	22,388		69		22,819		29
Agricultural loans	960		—		664		—
Commercial and industrial loans	7,402		2		6,698		1
Consumer loans	544		—		744		—
All other loans	—		—		—		—
Total loans	$	31,294	$	71	$	30,925	$	30

The amount of interest income recognized by the Company within the periods stated above was due to loans modified in troubled debt restructurings that remain on accrual status. The average balances of loans included in impaired loans at March 31, 2020 and 2019, were $2.7 million and 2.1 million , respectively.

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 March 31, 2020 and December 31, 2019 (in thousands). There were no loans past due over eighty-nine days that were still accruing.



	March 31, 2020				December 31, 2019
	Nonaccrual with no Allowance for Credit Loss		Nonaccrual		Nonaccrual
Construction and land development	$	—	$	39	$	41
Agricultural real estate	150		569		479
1-4 Family residential properties	3,478		7,416		7,379
Multifamily residential properties	2,260		3,104		3,137
Commercial real estate	1,273		4,351		4,351
Loans secured by real estate	7,161		15,479		15,387
Agricultural loans	812		822		769
Commercial and industrial loans	3,824		4,994		8,441
Consumer loans	125		492		521
Total loans	$	11,922	$	21,787	$	25,118

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

Acquired Loans

The Company acquired certain loans considered to be credit-impaired ("PCI") in its business combinations prior to the adoption of ASU 2016-13. At acquisition, these loans evidenced deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of these loans was included in the consolidated balance sheet amounts for Loans. The amount of these loans at December 31, 2019 was as follows (in thousands):



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

For PCI loans, the difference between contractually required payments at acquisition and the cash flow expected to be collected is referred to as the non-accretable difference. Any excess of expected cash flows over the fair value is referred to as the accretable yield. Subsequent decreases to the expected cash flows result in a provision for loan and lease losses. Subsequent increases in expected cash flows result in a reversal of the provision for loan and lease losses to the extent of prior charges and then an adjustment to accretable yield, which had a positive impact on interest income. As of December 31, 2019 , subsequent changes in expected cash flows resulted in approximately $365,000 of provision recorded and approximately $1,229,000 of provision reversed.

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

Troubled Debt Restructuring

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

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



Troubled debt restructurings:	March 31, 2020		December 31, 2019
1-4 Family residential properties	$	1,882	$	1,905
Commercial real estate	2,008		1,746
Loans secured by real estate	3,890		3,651
Agricultural loans	553		669
Commercial and industrial loans	1,017		1,349
Consumer loans	139		134
Total	$	5,599	$	5,803
Performing troubled debt restructurings:
1-4 Family residential properties	$	1,366	$	1,382
Commercial real estate	1,140		1,146
Loans secured by real estate	2,506		2,528
Agricultural Loans	41		40
Commercial and industrial loans	125		128
Consumer loans	4		5
Total	$	2,676	$	2,701

The following table presents loans modified as TDRs during the three months ended March 31, 2020 and 2019 , 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.



	March 31, 2020				March 31, 2019
	Number of Modifications	Recorded Investment		Type of Modifications	Number of Modifications	Recorded Investment		Type of Modifications
1-4 Family residential properties	—	$	—		1	$	46	(b)(c)
Commercial real estate	1	305		(b)	1	483		(b)(c)
Loans secured by real estate	1	305			2	529
Commercial and industrial loans	1	7		(b)	2	72		(b)(c)
Consumer Loans	1	11		(b)	1	14		(b)(c)
Total	3	$	323		5	$	615

Type of modifications:

(a) Reduction of stated interest rate of loan

(b) Change in payment terms

(d) Permanent reduction of the recorded investment

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

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

Note 5 -- Goodwill and Intangible Assets

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



	March 31, 2020				December 31, 2019
	Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization
Goodwill not subject to amortization (effective 1/1/02)	$	108,752	$	3,760	$	108,752	$	3,760
Intangibles from branch acquisition	3,015		3,015		3,015		3,015
Core deposit intangibles	32,355		18,589		32,355		17,746
Other intangibles	16,389		4,244		16,129		3,917
	$	160,511	$	29,608	$	160,251	$	28,438

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 March 31, 2020 , March 31, 2019 and December 31, 2019 (in thousands):



	March 31, 2020			March 31, 2019			December 31, 2019
Beginning Balance	$	1,444		$	2,101		$	2,101
Mortgage servicing rights acquired during period	—			—			—
Mortgage servicing rights capitalized	—			—			—
Valuation reserve	(18		)	—			(380		)
Mortgage servicing rights amortized	(126		)	(58		)	(411		)
I/O Strip	(4		)	—			134
Ending Balance	$	1,296		$	2,043		$	1,444

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



	Three months ended March 31,
	2020		2019
Core deposit intangibles	$	843	$	980
Customer list intangibles	326		318
Mortgage servicing rights	126		58
	$	1,295	$	1,356

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



Aggregate amortization expense:
For period 01/01/20-3/31/20	$	1,295
Estimated amortization expense:
For period 4/01/20-12/31/20	3,674
For year ended 12/31/20	4,285
For year ended 12/31/21	3,919
For year ended 12/31/22	3,498
For year ended 12/31/23	2,946
For year ended 12/31/24	2,633

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

Note 6 -- Repurchase Agreements and Other Borrowings

Securities sold under agreements to repurchase were $231.6 million at March 31, 2020 , a increase of $23.5 million from $208.1 million at December 31, 2019 . The increase during the first three months of 2020 was primarily due to changes in business cash flow needs. All of the transactions have overnight maturities with a weighted average rate of 0.12% .

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

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



	March 31, 2020		December 31, 2019
US Treasury securities and obligations of U.S. government corporations & agencies	$	36,437	$	77,333
Obligations of states and political subdivisions	—		2,375
Mortgage-backed securities: GSE: residential	194,144		128,401
Other Securities	1,068		—
Total	$	231,649	$	208,109

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



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

Note 7 -- Fair Value of Assets and Liabilities

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



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



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



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

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

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

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

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

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

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

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



			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2020
Available-for-sale securities:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	56,689	$	—	$	56,689	$	—
Obligations of states and political subdivisions	163,502		—		162,712		790
Mortgage-backed securities	395,511		—		395,511		—
Other securities	2,099		146		1,953		—
Total available-for-sale securities	617,801		146		616,865		790
Derivative assets:
Interest rate swaps	1,002		—		1,002		—
	$	618,803	$	146	$	617,867	$	790
Derivative liabilities:
Interest rate swaps	$	2,710	$	—	$	2,710	$	—
December 31, 2019
Available-for-sale securities:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	107,320	$	—	$	107,320	$	—
Obligations of states and political subdivisions	178,433		—		177,460		973
Mortgage-backed securities	396,126		—		396,126		—
Other securities	4,169		219		3,950		—
Total available-for-sale securities	$	686,048	$	219	$	684,856	$	973
Derivative liabilities:
Interest rate swaps	$	325	$	—	$	325	$	—

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



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

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

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

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

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

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

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

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

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

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



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

Sensitivity of Significant Unobservable Inputs

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



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



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

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



	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
March 31, 2020
Financial Assets
Cash and due from banks	$	181,100	$	181,100	$	181,100	$	—	$	—
Federal funds sold	927		927		927		—		—
Certificates of deposit investments	4,380		4,380		—		4,380		—
Available-for-sale securities	617,801		617,801		146		616,865		790
Held-to-maturity securities	24,563		24,806		—		24,806		—
Loans held for sale	1,251		1,251		—		1,251		—
Loans net of allowance for loan losses	2,710,171		2,627,881		—		—		2,627,881
Interest receivable	15,422		15,422		—		15,422		—
Federal Reserve Bank stock	9,401		9,401		—		9,401		—
Federal Home Loan Bank stock	5,450		5,450		—		5,450		—
Financial Liabilities
Deposits	$	2,908,627	$	2,920,736	$	—	$	2,353,150	$	567,586
Securities sold under agreements to repurchase	231,649		231,699		—		231,699		—
Interest payable	2,029		2,029		—		2,029		—
Federal Home Loan Bank borrowings	119,921		124,463		—		124,463		—
Other borrowings	5,000		5,000		—		5,000		—
Junior subordinated debentures	18,900		14,632		—		14,632		—



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

Note 8 -- Leases

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

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

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

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

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

For leases in effect at January 1, 2019 and for leases commencing thereafter, the Company recognizes a lease liability and a right-of-use asset, based on the present value of lease payments over the lease term. The discount rate used in determining present value was the Company's incremental borrowing rate which is the FHLB fixed advance rate based on the remaining lease term as of January 1, 2019, or the commencement date for leases subsequently entered into. The following table contains supplemental balance sheet information related to leases (dollars in thousands):



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

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

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



Year ending December 31,
2020	$	2,476
2021	2,391
2022	2,099
2023	1,849
2024	1,407
Thereafter	9,085
Total lease payments	19,307
Less imputed interest	(2,739		)
Total lease liability	$	16,568

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



	Thee months ended March 31,
	2020			2019
Operating lease cost	$	642		$	671
Short-term lease cost	46			23
Variable lease cost	169			224
Total lease cost	857			918
Income from subleases	(193		)	(248		)
Net lease cost	$	664		$	670

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

Note 9 -- Derivatives

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

Derivatives Designated as Hedging Instruments

The following table provides the outstanding notional balances and fair values of outstanding derivatives designated as hedging instruments as of March 31, 2020 and December 31, 2019 (in thousands):



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

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



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

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

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



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

Derivatives Not Designated as Hedging Instruments

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



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

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 -month periods ended March 31, 2020 and 2019 . This discussion and analysis should be read in conjunction with the consolidated financial statements, related notes and selected financial data appearing elsewhere in this report.

Forward-Looking Statements

This report may contain certain forward-looking statements, such as discussions of the Company’s pricing and fee trends, credit quality and outlook, liquidity, new business results, expansion plans, anticipated expenses, planned schedules and COVID-19. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are identified by use of the words “believe,” ”expect,” ”intend,” ”anticipate,” ”estimate,” ”project,” or similar expressions. Actual results could differ materially from the results indicated by these statements because the realization of those results is subject to many risks and uncertainties, including those described in Item 1A-“Risk Factors” and other sections of the Company’s Annual Report on Form 10-K and the Company’s other filings with the SEC, and changes in interest rates, general economic conditions and those in the Company’s market area, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios and the valuation of the investment portfolio, the Company’s success in raising capital and effecting and integrating acquisitions, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area and accounting principles, policies and guidelines, the severity, magnitude and duration of COVID-19 pandemic, the direct and indirect impact of such pandemic, including responses to the pandemic by the government, businesses customers' businesses, the disruption of global, national, state and local economies associated with the COVID-19 pandemic, which could affect the Company's liquidity and capital positions, impair the ability of the Company's borrowers to repay outstanding loans, impair collateral values, and further increase the allowance for credit losses, and the impact of the COVID-19 pandemic on the Company's financial results, including possible lost revenue and increased expenses (including cost of capital), as well as possible goodwill impairment charges. Furthermore, forward-looking statements speak only as of the date they are made. Except as required under the federal securities laws or the rules and regulations of the SEC, we do not undertake any obligation to update or review any forward-looking information, whether as a result of new information, future events or otherwise. Further information concerning the Company and its business, including a discussion of these and additional factors that could materially affect the Company’s financial results, is included in the Company’s 2019 Annual Report on Form 10-K under the headings “Item 1. Business" and “Item 1A. Risk Factors."

COVID-19 Impact

The COVID-19 outbreak is an unprecedented event that provides significant economic uncertainty for a broad spectrum of industries. The spread of this outbreak has caused significant disruptions in the U.S. economy and some of these impacts will be long lasting. As it continues to evolve it is not clear when or how the pandemic-driven contraction will recover. Congress, the President, and the Federal Reserve have taken several actions designed to cushion the economic fallout. Most notably, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law at the end of March 2020 as a $2 trillion legislative package. The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. Many of the CARES Act provisions, as well as other recent legislative and regulatory efforts, are expected to have a material impact on financial institutions. The Company's strong track record and revenue diversification provide a solid foundation for earnings and capital. The Company is focused on supporting its customers, communities and employees during this unique operating environment. Following is a description of the impact COVID-19 is having, actions taken as a result of COVID-19, and certain risks to the Company that COVID-19 creates or exacerbates, as well as management's outlook on the current COVID-19 situation.

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

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

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

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

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

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



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

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

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

Overview

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

Net income was $9,999,000 and $13,316,000 for the three months ended March 31, 2020 and 2019 , respectively. Diluted net income per common share was $0.60 and $0.80 for the three months ended March 31, 2020 and 2019 .

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



	Three months ended				Year ended
	March 31, 2020		March 31, 2019		December 31, 2019
Return on average assets	1.05	%	1.38	%	1.25	%
Return on average common equity	7.48	%	11.02	%	9.49	%
Average equity to average assets	13.97	%	12.51	%	13.17	%

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

Net interest margin, on a tax equivalent basis, defined as net interest income divided by average interest-earning assets, was 3.51% for the three months ended March 31, 2020 , down from 3.74% for the same period in 2019 . This decrease was primarily due to lower yields on loans and investments. Net interest income before the provision for loan losses was $29.9 million compared to net interest income of $32.3 million for the same period in 2019 . The decrease in net interest income was primarily due to the decrease in investment securities balances and lower yields on investments and loans.

Total non-interest income of $16.5 million increased $1.9 million or 12.8% from $14.6 million for the same period last year. Insurance commissions increased approximately $1.1 million , security gains of $531,000 were realized and other income increased $330,000 primarily due to fees received from derivative transactions.

Total non-interest expense of $27.7 million decreased $579,000 or 2.0% from $ 28.3 million for the same period last year. The decrease was primarily due to declines in occupancy and equipment expense, FDIC insurance expense, and ATM/debit card expense.

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



	Change in Net Income 2020 versus 2019
		Three months ended March 31,
Net interest income		$	(2,379	)
Provision for loan losses		(4,534		)
Other income, including securities transactions		1,871
Other expenses		579
Income taxes		1,146
Decrease in net income		$	(3,317	)

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

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

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

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

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

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

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


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


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

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

The Company expensed $93,000 and $268,000 for the assessment during the first three months of 2020 and 2019 , respectively. In addition to its insurance assessment, through March 29, 2019, each insured bank was subject to quarterly debt service assessments in connection with bonds issued by a government corporation that financed the federal savings and loan bailout. The Company expensed $11,000 during the first three months of 2019 for this assessment,

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

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

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

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

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

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

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

Critical Accounting Policies and Use of Significant Estimates

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

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

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

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

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

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

The allowance for credit losses is measured on a collective (pool) basis for non-impaired loans with similar risk characteristics. Historical credit loss experience provides the basis for the estimate of expected credit losses. Adjustments to historical loss information are made for relevant factors to each pool including merger & acquisition activity, economic conditions, changes in policies, procedures & underwriting, and concentrations. The Company estimates the appropriate level of allowance for credit losses for impaired loans by evaluating them separately. A specific allowance is assigned to an impaired loan when expected cash flows or collateral are less than the carrying amount of the loan.

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

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

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

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

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

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

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

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

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

The three levels are defined as follows:


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


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


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

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

Results of Operations

Net Interest Income

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

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

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



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

(1) 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.

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 -months ended March 31, 2020 , compared to the same period in 2019 (in thousands):



	Three months ended March 31, 2020 compared to 2019 Increase / (Decrease)
	Total Change			Volume (1)			Rate (1)
Earning Assets:
Interest-bearing deposits	$	(606	)	$	(406	)	$	(200	)
Federal funds sold	(1		)	5			(6		)
Certificates of deposit investments	(7		)	(38		)	31
Investment securities:
Taxable	(472		)	(245		)	(227		)
Tax-exempt (2)	(188		)	(148		)	(40		)
Loans (2) (3)	(2,065		)	5,615			(7,680		)
Total interest income	(3,339		)	4,783			(8,122		)
Interest-Bearing Liabilities:
Interest-bearing deposits
Demand deposits	(530		)	(83		)	(447		)
Savings deposits	(33		)	—			(33		)
Time deposits	46			(923		)	969
Securities sold under agreements to repurchase	(66		)	161			(227		)
FHLB advances	(143		)	16			(159		)
Federal Funds Purchased	10			10			—
Junior subordinated debt	(220		)	(130		)	(90		)
Other debt	4			—			4
Total interest expense	(932		)	(949		)	17
Net interest income	$	(2,407	)	$	5,732		$	(8,139	)

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

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

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

The tax equivalent net interest income decreased $2.4 million , or 7.3% , to $30.4 million for the three months ended March 31, 2020 , from $32.8 million for the same period in 2019 . Net interest income decreased primarily due to a decline in investment balances and decrease in rates on investments and loans. The net interest margin decreased primarily due to a lower interest rates on loans and investments.

For the three months ended March 31, 2020 , average earning assets decreased by $64.9 million , or 1.8% , and average interest-bearing liabilities decreased $116.0 million or 4.2% , compared with average balances for the same period in 2019 .

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


•	Average interest-bearing deposits with other financial institutions decreased $88.4 million or 78.8% .


•	Average federal funds sold increased $0.3 million or 39.7% .


•	Average certificates of deposits investments decreased $2.3 million or 31.1%


•	Average loans increased by $80.2 million or 3.1% .


•	Average securities decreased by $54.7 million or 7.1% .


•	Average interest-bearing customer deposits decreased by $122.5 million or 5.1% .


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


•	Average borrowings and other debt decreased by $13.7 million or 8.8% .


•	Net interest margin decreased to 3.51% for the first three months of 2020 from 3.74% for the first three months of 2019 .

Provision for Loan Losses

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

Other Income

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



	Three months ended March 31,
	2020		2019		$ Change
Wealth management revenues	$	3,626	$	3,645	$	(19	)
Insurance commissions	6,621		5,555		1,066
Service charges	1,778		1,802		(24		)
Security gains, net	531		54		477
Mortgage banking revenue, net	308		239		69
ATM / debit card revenue	1,987		2,016		(29		)
Bank Owned Life Insurance	431		430		1
Other	1,228		898		330
Total other income	$	16,510	$	14,639	$	1,871

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


•	Wealth management revenues decreased $19,000 or 0.5% to $3,626,000 from $3,645,000 primarily due to decreases in market value.


•	Insurance commissions increased $1,066,000 or 19.2% to $6,621,000 from $5,555,000 primarily due to an increase in insurance activities and revenues.


•	Fees from service charges decreased $24,000 or 1.3% to $1,778,000 from $1,802,000 primarily due to a decrease in the number of deposit transactions.


•	The sale of securities during the three months ended March 31, 2020 resulted in net securities gains of $ 531,000 compared to $ 54,000 during the three months ended March 31, 2019 .


•	Mortgage banking income increased $69,000 or 28.9% to $ 308,000 from $ 239,000 . Loans sold balances were as follows:


•	$20.6 million (representing 151 loans) for the three months ended March 31, 2020


•	$12.4 million (representing 102 loans) for the three months ended March 31, 2019

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


•	Revenue from ATMs and debit cards decreased $29,000 or 1.4% to $ 1,987,000 from $ 2,016,000 primarily due to an decrease in electronic transactions.


•	Bank owned life insurance income increased $1,000 or 0.2% .


•	Other income increased $330,000 or 36.7% to $ 1,228,000 from $ 898,000 primarily due fee income received from derivatives transactions.

Other Expense

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



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

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


•	Salaries and employee benefits, the largest component of other expense, decreased $74,000 or 0.4% to $16,500,000 from $16,574,000 . The decrease is primarily due to a decrease in bonus accrual due to lower expected achievement, offset by increases for merit raises and applicable payroll taxes . There were 835 and 832 full-time equivalent employees at March 31, 2020 and 2019 , respectively.


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


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


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


•	Other operating expenses increased $57,000 or 2.0% to $2,912,000 in 2020 from $2,855,000 in 2019 primarily due to an increase in data processing costs offset by decreases in loan collection expenses and acquisition costs.


•	On a net basis, all other categories of operating expenses decreased $172,000 or 1.2% to $2,845,000 in 2020 from $3,017,000 in 2019 . The increase is primarily due an increase in legal and professional expenses offset by a Small Bank Assessment credit from the FDIC.

Income Taxes

Total income tax expense amounted to $3.2 million ( 24.1% effective tax rate) for the three months ended March 31, 2020 , compared to $4.3 million ( 24.5% effective tax rate) for the same period in 2019 .

The Company files U.S. federal and state of Illinois, Indiana, and Missouri income tax returns. The Company is no longer subject to U.S. federal or state income tax examinations by tax authorities for years before 2017 .

Analysis of Balance Sheets

Securities

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



	March 31, 2020				December 31, 2019
	Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	80,630	2.34	%	$	175,970	2.39	%
Obligations of states and political subdivisions	167,146		2.99	%	172,460		2.98	%
Mortgage-backed securities: GSE residential	385,194		2.51	%	391,307		2.79	%
Other securities	2,028		3.83	%	4,028		3.44	%
Total securities	$	634,998	2.62	%	$	743,765	2.83	%

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

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



	Amortized Cost		Estimated Fair Value		Average Credit Rating of Fair Value at March 31, 2020 (1)
	Amortized Cost		Estimated Fair Value		AAA		AA +/-		A +/-		BBB +/-		< BBB -		Not rated
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	56,067	$	56,689	$	—	$	56,689	$	—	$	—	$	—	$	—
Obligations of state and political subdivisions	167,146		163,502		16,372		105,653		40,302		—		—		1,175
Mortgage-backed securities (2)	385,194		395,511		1,039		—		—		—		—		394,472
Other securities	2,028		2,099		—		—		—		—		—		2,099
Total available-for-sale	$	610,435	$	617,801	$	17,411	$	162,342	$	40,302	$	—	$	—	$	397,746
Held-to-maturity:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	24,563	$	24,806	$	—	$	24,806	$	—	$	—	$	—	$	—

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

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

Other-than-temporary Impairment of Securities

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

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


•	how much fair value has declined below amortized cost;


•	how long the decline in fair value has existed;


•	the financial condition of the issuers;


•	contractual or estimated cash flows of the security;


•	underlying supporting collateral;


•	past events, current conditions and forecasts;


•	significant rating agency changes on the issuer; and


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

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

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

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

Loans

The loan portfolio 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 March 31, 2020 and December 31, 2019 (in thousands):



	March 31, 2020				December 31, 2019
	Amortized Cost		% Outstanding Loans		Amortized Cost		% Outstanding Loans
Construction and land development	$	123,326	4.5	%	$	94,142	3.5	%
Agricultural real estate	242,891		8.9	%	240,241		8.9	%
1-4 Family residential properties	325,128		11.8	%	336,427		12.5	%
Multifamily residential properties	139,734		5.1	%	153,948		5.7	%
Commercial real estate	1,002,868		36.5	%	995,702		36.9	%
Loans secured by real estate	1,833,947		66.8	%	1,820,460		67.5	%
Agricultural loans	139,136		5.1	%	136,124		5.1	%
Commercial and industrial loans	565,789		20.6	%	528,973		19.6	%
Consumer loans	82,104		3.0	%	83,183		3.1	%
All other loans	123,322		4.5	%	126,607		4.7	%
Total loans	$	2,744,298	100.0	%	$	2,695,347	100.0	%

Loan balances increased $49.0 million , or 1.82% . The balance of real estate loans held for sale, included in the balances shown above, amounted to $1.3 million and $1.8 million as of March 31, 2020 and December 31, 2019 , respectively.

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

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



	March 31, 2020				December 31, 2019
	Principal balance		% Outstanding Loans		Principal balance		% Outstanding loans
Central region	$	617,145	22.5	%	$	568,256	21.1	%
Sullivan region	391,171		14.3	%	404,169		15.0	%
Decatur region	615,351		22.4	%	602,716		22.3	%
Peoria region	448,509		16.3	%	443,526		16.5	%
Highland region	556,374		20.3	%	547,156		20.3	%
Southern region	115,748		4.2	%	129,524		4.8	%
Total all regions	$	2,744,298	100.0	%	$	2,695,347	100.0	%

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

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



	March 31, 2020				December 31, 2019
	Principal balance		% Outstanding Loans		Principal balance		% Outstanding Loans
Other grain farming	$	309,400	11.27	%	$	301,469	11.18	%
Lessors of non-residential buildings	294,577		10.73	%	300,611		11.15	%
Lessors of residential buildings & dwellings	280,895		10.24	%	284,378		10.55	%
Other gambling industries	123,420		4.50	%	90,429		3.36	%
Hotels and motels	119,676		4.36	%	120,735		4.48	%
Nursing care facilities (skilled nursing)	108,661		3.96	%	92,452		3.43	%

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

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



	Maturity (1)
	One year or less(2)		Over 1 through 5 years		Over 5 years		Total
Construction and land development	$	39,619	$	39,093	$	44,614	$	123,326
Agricultural real estate	20,859		71,113		150,919		242,891
1-4 Family residential properties	19,064		66,368		239,696		325,128
Multifamily residential properties	16,960		82,118		40,656		139,734
Commercial real estate	91,691		423,473		487,704		1,002,868
Loans secured by real estate	188,193		682,165		963,589		1,833,947
Agricultural loans	104,047		30,666		4,423		139,136
Commercial and industrial loans	195,633		291,152		79,004		565,789
Consumer loans	4,887		62,524		14,693		82,104
All other loans	16,734		32,466		74,122		123,322
Total loans	$	509,494	$	1,098,973	$	1,135,831	$	2,744,298

(1) Based upon remaining contractual maturity.

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

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

Nonperforming Loans and Nonperforming Other Assets

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

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

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

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



	March 31, 2020			December 31, 2019
Nonaccrual loans	$	21,787		$	25,118
Restructured loans which are performing in accordance with revised terms	2,676			2,700
Total nonperforming loans	24,463			27,818
Repossessed assets	2,843			3,720
Total nonperforming loans and repossessed assets	$	27,306		$	31,538
Nonperforming loans to loans, before allowance for loan losses	0.89		%	1.03		%
Nonperforming loans and repossessed assets to loans, before allowance for loan losses	1.00		%	1.17		%

The $ 3,331,000 decrease in nonaccrual loans during 2020 resulted from the net of $1,950,000 of loans put on nonaccrual status offset by $ 3,937,000 of loans becoming current or paid-off, $ 184,000 of loans transferred to other real estate and $1,160,000 of loans charged off. The following table summarizes the composition of nonaccrual loans (in thousands):



	March 31, 2020				December 31, 2019
	Balance		% of Total		Balance		% of Total
Construction and land development	$	39	0.2	%	$	41	0.2	%
Agricultural real estate	569		2.6	%	479		1.9	%
1-4 Family residential properties	7,416		34.0	%	7,379		29.3	%
Multifamily Residential properties	3,104		14.2	%	3,137		12.5	%
Commercial real estate	4,351		20.0	%	4,351		17.3	%
Loans secured by real estate	15,479		71.0	%	15,387		61.2	%
Agricultural loans	822		3.8	%	769		3.1	%
Commercial and industrial loans	4,994		22.9	%	8,441		33.6	%
Consumer loans	492		2.3	%	521		2.1	%
Total loans	$	21,787	100.0	%	$	25,118	100.0	%

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

The $877,000 decrease in repossessed assets during the first three months of 2020 resulted from $201,000 of additional assets repossessed and $1,078,000 of repossessed assets sold. The following table summarizes the composition of repossessed assets (in thousands):



	March 31, 2020				December 31, 2019
	Balance		% of Total		Balance		% of Total
Construction and land development	$	1,769	62.2	%	$	1,826	49.1	%
1-4 family residential properties	61		2.1	%	1,024		27.6	%
Multi-family residential properties	64		2.3	%	64		1.7	%
Commercial real estate	890		31.3	%	730		19.6	%
Total real estate	2,784		97.9	%	3,644		98.0	%
Commercial & industrial loans	—		—	%	76		2.0	%
Consumer loans	59		2.1	%	—		—	%
Total repossessed collateral	$	2,843	100.0	%	$	3,720	100.0	%

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

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 March 31, 2020 , the Company’s loan portfolio included $381.6 million of loans to borrowers whose businesses are directly related to agriculture. Of this amount, $309.4 million was concentrated in other grain farming. Total loans to borrowers whose businesses are directly related to agriculture increased $5.2 million from $376.4 million at December 31, 2019 while loans concentrated in other grain farming increased $7.9 million from $301.5 million at December 31, 2019 . While the Company adheres to sound underwriting practices, including collateralization of loans, any extended period of low commodity prices, drought conditions, significantly reduced yields on crops and/or reduced levels of government assistance to the agricultural industry could result in an increase in the level of problem agriculture loans and potentially result in loan losses within the agricultural portfolio. In addition, the Company has $119.7 million of loans to motels and hotels. The performance of these loans is dependent on borrower specific issues as well as the general level of business and personal travel within the region. While the Company adheres to sound underwriting standards, a prolonged period of reduced business or personal travel could result in an increase in nonperforming loans to this business segment and potentially in loan losses. The Company also has $294.6 million of loans to lessors of non-residential buildings, $280.9 million of loans to lessors of residential buildings and dwellings, and $123.4 million of loans to other gambling industries.

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

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

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



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

The ratio of allowance for credit losses to loans outstanding was 1.20% as of March 31, 2020 compared to 1.03% as of March 31, 2019 . The ratio of the allowance for credit losses to nonperforming loans is 134% as of March 31, 2020 compared to 103% as of March 31, 2019 . The increase in this ratio is primarily due to the increase in the allowance for credit losses at March 31, 2020 compared to March 31, 2019 . This increase is primarily due to the impacts of COVID-19 on the operations and earnings of borrowers, as well as, increases in loan balances and net charge offs.

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

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 three months ended March 31, 2020 and 2019 and for the year ended December 31, 2019 (dollars in thousands):



	Three months ended March 31, 2020				Three months ended March 31, 2019				Year ended December 31, 2019
	Average Balance		Weighted Average Rate		Average Balance		Weighted Average Rate		Average Balance		Weighted Average Rate
Demand deposits:
Non-interest-bearing	$	628,588	—	%	$	605,296	—	%	$	608,106	—	%
Interest-bearing	1,264,489		0.35	%	1,335,626		0.49	%	1,303,814		0.50	%
Savings	435,480		0.11	%	436,581		0.14	%	437,549		0.13	%
Time deposits	570,132		1.86	%	620,377		1.70	%	630,369		1.88	%
Total average deposits	$	2,898,689	0.54	%	$	2,997,880	0.59	%	$	2,979,838	0.64	%

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



	Three months ended March 31, 2020		Three months ended March 31, 2019		Year ended December 31, 2019
High month-end balances of total deposits	$	2,932,973	$	3,046,213	$	3,046,212
Low month-end balances of total deposits	2,873,260		2,961,660		2,917,366

During the first three months of 2020 , the average balance of deposits decreased by $81.1 million from the average balance for the year ended December 31, 2019 . Average non-interest bearing deposits increased by $20.5 million , average interest-bearing balances decreased by $39.3 million , savings account balances decreased $2.1 million and balances of time deposits decreased $60.2 million .

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 March 31, 2020 and December 31, 2019 (in thousands):



	March 31, 2020		December 31, 2019
3 months or less	$	105,158	$	81,910
Over 3 through 6 months	40,470		55,495
Over 6 through 12 months	85,461		95,725
Over 12 months	99,016		107,861
Total	$	330,105	$	340,991

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



	March 31, 2020			December 31, 2019
Securities sold under agreements to repurchase	$	231,649		$	208,109
Federal Home Loan Bank advances:
Fixed term – due in one year or less	44,921			39,000
Fixed term – due after one year	75,000			74,895
Other borrowings
Fed funds	—			5,000
Debt due in one year or less	5,000			—
Debt due after one year	—			—
Junior subordinated debentures	18,900			18,858
Total	$	375,470		$	345,862
Average interest rate at end of period	0.75		%	1.08		%
Maximum outstanding at any month-end:
Securities sold under agreements to repurchase	$	231,649		$	208,109
Federal Home Loan Bank advances:
FHLB-Overnight	—			25,000
Fixed term – due in one year or less	59,904			66,000
Fixed term – due after one year	75,000			74,895
Other borrowings
Federal funds purchased	8,000			5,000
Debt due in one year or less	5,000			—
Debt due after one year	—			6,549
Junior subordinated debentures	18,900			29,126
Averages for the period (YTD):
Securities sold under agreements to repurchase	$	202,693		$	169,437
Federal Home Loan Bank advances:
FHLB-overnight	7,363			7,148
Fixed term – due in one year or less	27,893			63,151
Fixed term – due after one year	84,890			39,331
Other borrowings
Federal funds purchased	2,110			616
Loans due in one year or less	769			—
Loans due after one year	—			1,825
Junior subordinated debentures	18,873			26,649
Total	$	344,591		$	308,157
Average interest rate during the period	1.17		%	1.66		%

Securities sold under agreements to repurchase increased $23.5 million during the first three months of 2020 primarily due to the cash flow needs of various customers. FHLB advances represent borrowings by First Mid Bank to economically fund loan demand. At March 31, 2020 the fixed term advances consisted of $120 million as follows:



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

The Company is party to a revolving credit agreement with The Northern Trust Company in the amount of $15 million . The balance on this line of credit was $5 million as of March 31, 2020 . This loan was renewed on April 10, 2020 for one year as a revolving credit agreement. At the time of the renewal, the maximum available balance was increased to $15 million from $10 million. The interest rate is floating at 2.25% over the federal funds rate. The loan is secured by all of the stock of First Mid Bank. The Company and First Mid Bank were in compliance with the then existing covenants at March 31, 2020 and 2019 and December 31, 2019 .

On February 27, 2004, the Company completed the issuance and sale of $10 million of floating rate trust preferred securities through First Mid-Illinois Statutory Trust I (“Trust I”), a statutory business trust and wholly-owned unconsolidated subsidiary of the Company, as part of a pooled offering. On October 7, 2019, these trust preferred securities were redeemed, along with $310,000 in common securities issued by Trust I and held by the Company, as a result of the concurrent redemption of 100% of the Company's junior subordinated debentures due 2034 and held by Trust I, which supported the trust preferred securities. The redemption price for the junior subordinated debentures was equal to 100% of the principal amount plus accrued interest, if any, up to, but not including, the redemption date of October 7, 2019. The proceeds from the redemption of the junior subordinated debentures were simultaneously applied to redeem all of the outstanding common securities and the outstanding trust preferred securities at a price of 100% of the aggregate liquidation amount of the trust preferred securities plus accumulated but unpaid distributions up to but not including the redemption date. The redemption was made pursuant to the optional redemption provisions of the underlying indenture.

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, 2.34% and 3.49% at March 31, 2020 and December 31, 2019 , respectively). The net proceeds to the Company were used for general corporate purposes, including the Company’s acquisition of Mansfield Bancorp, Inc. in 2006.

On September 8, 2016, the Company assumed the trust preferred securities of Clover Leaf Statutory Trust I (“CLST I”), a statutory business trust that was a wholly owned unconsolidated subsidiary of First Clover Financial. The $4,000,000 of trust preferred securities and an additional $124,000 additional investment in common equity of CLST I, is invested in junior subordinated debentures issued to CLST I. The subordinated debentures mature in 2025, bear interest at three-month LIBOR plus 185 basis points ( 2.59% and 3.74% at March 31, 2020 and December 31, 2019 , 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 ( 2.44% and 3.59% at March 31, 2020 and December 31, 2019 , respectively) and resets quarterly.

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

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

Interest Rate Sensitivity

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

In the banking industry, a traditional way to measure potential net interest income exposure to changes in interest rates is through a technique known as “static GAP” analysis which measures the cumulative differences between the amounts of assets and liabilities maturing or repricing at various intervals. By comparing the volumes of interest-bearing assets and liabilities that have contractual maturities and repricing points at various times in the future, management can gain insight into the amount of interest rate risk embedded in the balance sheet. The following table sets forth the Company’s interest rate repricing GAP for selected maturity periods at March 31, 2020 (dollars in thousands):



	Rate Sensitive Within																				Fair Value
	1 year			1-2 years			2-3 years			3-4 years			4-5 years			Thereafter			Total		Fair Value
Interest-earning assets:
Federal funds sold and other interest-bearing deposits	$	101,229		$	—		$	—		$	—		$	—		$	—		$	101,229	$	101,229
Certificates of deposit investments	1,685			980			1,715			—			—			—			4,380		4,380
Taxable investment securities	232,870			103,580			52,219			26,014			15,646			49,274			479,603		479,846
Nontaxable investment securities	21,182			21,900			14,755			16,304			18,146			70,474			162,761		162,761
Loans	1,110,682			510,139			388,739			292,781			321,233			120,724			2,744,298		2,662,008
Total	$	1,467,648		$	636,599		$	457,428		$	335,099		$	355,025		$	240,472		$	3,492,271	$	3,410,224
Interest-bearing liabilities:
Savings and NOW accounts	$	322,426		$	111,544		$	111,544		$	111,544		$	111,544		$	500,783		$	1,269,385	$	1,269,385
Money market accounts	304,254			18,442			18,442			18,442			18,442			63,359			441,381		441,381
Other time deposits	386,706			108,403			33,922			13,917			12,457			72			555,477		567,586
Short-term borrowings/debt	236,649			—			—			—			—			—			236,649		236,659
Long-term borrowings/debt	53,821			15,000			5,000			10,000			15,000			40,000			138,821		139,095
Total	$	1,303,856		$	253,389		$	168,908		$	153,903		$	157,443		$	604,214		$	2,641,713	$	2,654,106
Rate sensitive assets – rate sensitive liabilities	$	163,792		$	383,210		$	288,520		$	181,196		$	197,582		$	(363,742	)	$	850,558
Cumulative GAP	163,792			547,002			835,522			1,016,718			1,214,300			850,558
Cumulative amounts as % of total Rate sensitive assets	4.7		%	11.0		%	8.3		%	5.2		%	5.7		%	(10.4		)%
Cumulative Ratio	4.7		%	15.7		%	23.9		%	29.1		%	34.8		%	24.4		%

The static GAP analysis shows that at March 31, 2020 , the Company was asset sensitive, on a cumulative basis, through the twelve-month time horizon. This indicates that future decreases in interest rates could have an adverse effect on net interest income. There are several ways the Company measures and manages the exposure to interest rate sensitivity, including static GAP analysis. The Company’s ALCO also uses other financial models to project interest income under various rate scenarios and prepayment/extension assumptions consistent with First Mid Bank’s historical experience and with known industry trends. ALCO meets at least monthly to review the Company’s exposure to interest rate changes as indicated by the various techniques and to make necessary changes in the composition terms and/or rates of the assets and liabilities. The Company is currently experiencing downward pressure on asset yields resulting from the extended period of historically low interest rates and heightened competition for loans. A continuation of this environment could result in a decline in interest income and the net interest margin.

Capital Resources

At March 31, 2020 , the Company’s stockholders' equity increased $6.4 million , or 1.2% , to $533 million from $527 million as of December 31, 2019 . During the first three months of 2020 , net income contributed $10.0 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 $3.2 million , net of tax. No dividends were paid during the first quarter of 2020.

The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Bank holding companies follow minimum regulatory requirements established by the Board of Governors of the Federal Reserve System (“Federal Reserve System”), and First Mid Bank follow similar minimum regulatory requirements established for banks by the Office of the Comptroller of the Currency (“OCC”) and the Federal Deposit Insurance Corporation. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary action by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Quantitative measures established by regulatory capital standards to ensure capital adequacy require the the Company and its subsidiary banks to maintain a minimum capital amounts and ratios (set forth in the table below). Management believes that, as of March 31, 2020 and December 31, 2019 , the Company and First Mid Bank met all capital adequacy requirements.

As permitted by the interim final rule issued on March 27, 2020 by the federal banking regulatory agencies, the Company has 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 will be delayed for two years. After two years, the cumulative amount of these adjustments will be phased out of the regulatory capital calculation over a three year period, with 75% of the adjustments included in year three, 50% of the adjustments included in year four and 25% of the adjustments included in year five. After five years, the temporary delay of ASU 2016-13 adoption will be fully reversed.

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
March 31, 2020
Total Capital (to risk-weighted assets)
Company	$	460,430	16.13	%	$	300,082	> 10.50%	N/A		N/A
First Mid Bank	410,621		14.46		298,468		> 10.50	$	284,256	> 10.00%
Tier 1 Capital (to risk-weighted assets)
Company	429,465		15.05		242,924		> 8.50	N/A		N/A
First Mid Bank	379,656		13.37		241,617		> 8.50	227,405		> 8.00
Common Equity Tier 1 Capital (to risk-weighted assets)
Company	410,565		14.39		200,055		> 7.00	N/A		N/A
First Mid Bank	379,656		13.37		198,979		> 7.00	184,766		> 6.50
Tier 1 Capital (to average assets)
Company	429,465		11.59		148,166		> 4.00	N/A		N/A
First Mid Bank	379,656		10.31		147,351		> 4.00	184,189		> 5.00
December 31, 2019
Total Capital (to risk-weighted assets)
Company	$	444,305	15.74	%	$	296,378	> 10.50%	N/A		N/A
First Mid Bank	411,196		14.65		294,703		> 10.50	$	280,670	> 10.00%
Tier 1 Capital (to risk-weighted assets)
Company	417,394		14.79		239,925		> 8.50	N/A		N/A
First Mid Bank	384,285		13.69		238,569		> 8.50	224,536		> 8.00
Common Equity Tier 1 Capital (to risk-weighted assets)
Company	398,536		14.12		197,585		> 7.00	N/A		N/A
First Mid Bank	385,285		13.69		196,469		> 7.00	182,435		> 6.50
Tier 1 Capital (to average assets)
Company	417,395		11.20		149,044		> 4.00	N/A		N/A
First Mid Bank	384,285		10.37		148,268		> 4.00	185,335		> 5.00

The Company's risk-weighted assets, capital and capital ratios for March 31, 2020 are computed in accordance with Basel III capital rules which were effective January 1, 2015. Prior periods are computed following previous rules. See heading "Basel III" in the Overview section of this report for a more detailed description of the Basel III rules. As of March 31, 2020 , 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.

Stock Plans

Participants may purchase Company stock under the following four plans of the Company: the Deferred Compensation Plan, the First Retirement and Savings Plan, the Dividend Reinvestment Plan, and the 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, 2019 .

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

A maximum of 149,983 shares of common stock may be issued under the SI Plan. The Company awarded 25,200 and 25,950 restricted stock awards during 2019 and 2018, respectively and 16,950 and 16,200 as stock unit awards during 2020 and 2019 , respectively.

Employee Stock Purchase Plan

Stock Repurchase Program

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

On August 16, 2019, the Company adopted a repurchase plan under Rule 10b5-1 and Rule 10b-18 of the Exchange Act. The Company implemented the repurchase plan in connection with its previously announced stock repurchase program. Under the repurchase plan, up to approximately $6.2 million worth of shares of the Company's common stock could have been repurchased. The 10b5-1 plan expired in early 2020, and there were no shares repurchased under this plan during 2020. During the quarter, the Company repurchased no shares. During 2019, the Company repurchased approximately $1.1 million in common stock, or 35,427 shares. The Company has approximately $4.9 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’s other sources of cash include overnight federal fund lines, Federal Home Loan Bank advances, deposits of the State of Illinois, the ability to borrow at the Federal Reserve Bank of Chicago, and the Company’s operating line of credit with The Northern Trust Company.

Details 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. 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 March 31, 2020 , 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 March 31, 2020 , the excess collateral at the FHLB would support approximately $525.1 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 March 31, 2020 , the Company had a revolving credit agreement in the amount of $15 million with The Northern Trust Company with an outstanding balance of $5 million and $10 million in available funds. This loan was renewed on April 10, 2020 for one year as a revolving credit agreement. The interest rate is floating at 2.25% over the federal funds rate. The loan is secured by all of the stock of First Mid Bank, including requirements for operating and capital ratios. The Company and its subsidiary bank were in compliance with the then existing covenants at March 31, 2020 and 2019 and December 31, 2019 .

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


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


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


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


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

The following table summarizes significant contractual obligations and other commitments at March 31, 2020 (in thousands):



	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Time deposits	$	555,477	$	386,706	$	142,325	$	26,374	$	72
Debt	23,900		5,000		—		—		18,900
Other borrowings	351,570		266,645		19,925		25,000		40,000
Operating leases	19,319		2,608		4,400		3,227		9,084
Supplemental retirement	459		50		100		100		209
	$	950,725	$	661,009	$	166,750	$	54,701	$	68,265

For the three months ended March 31, 2020 , net cash of $16.6 million was provided by operating activities, $59.4 million was provided by investing activities, and $ 20.9 million was provided by financing activities. In total, cash and cash equivalents increased by $97.0 million since year-end 2019 .

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



	March 31, 2020		December 31, 2019
Unused commitments and lines of credit:
Commercial real estate	$	138,307	$	122,479
Commercial operating	312,397		308,393
Home equity	38,401		38,933
Other	96,124		103,912
Total	$	585,229	$	573,717
Standby letters of credit	$	11,022	$	11,535

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

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

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, 2019 . 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, 2019 .

ITEM 4. CONTROLS AND PROCEDURES

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

PART II



ITEM 1.	LEGAL PROCEEDINGS

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, 2019 . In addition to the risk factors noted in the Company's Annual Report, the following should also be considered:

The ongoing COVID-19 pandemic and the measures intended to prevent its spread have had, and may continue to have a an adverse effect on the Company's operations, results of operations and financial condition, and the severity of these adverse effects depend on future developments which are highly uncertain and difficult to predict.

The global health concerns related to COVID-19 and government actions implemented to reduce the spread of the virus have had an adverse impact on the macroeconomic environment. COVID-19 has significantly increased economic uncertainty and reduced economic activity. The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place or total lock-down orders and business limitations and shutdowns. These measures have significantly contributed to rising unemployment and negatively impacted consumer and business spending. The United States government has taken steps to mitigate some of the more severe anticipated economic effects of the virus, including the passage of the CARES Act, but there is no assurance that these steps will be effective or achieve the desired positive economic results in a timely fashion. COVID-19 has impacted, and is likely to further adversely impact, the workforce and operations of the Company, and the operations of our borrowers, customers and business partners. In particular, we may experience financial losses due to a number of operational factors impacting us or our borrowers, customers or business partners, including but not limited to:


•	credit losses resulting from financial stress being experienced by our borrowers as a result of the outbreak and related governmental actions, particularly in the hospitality, energy, retail and restaurant industries, but across other industries as well;


•	declines in collateral values;


•	third party disruptions, including outages at network providers and other suppliers;


•	increased cyber and payment fraud risk, as cybercriminals attempt to profit from the disruption, given increased online and remote activity; and


•	operational failures due to changes in our normal business practices necessitated by the outbreak and related governmental actions.

These factors may remain prevalent for a significant period of time and may continue to adversely affect the Company, results of operations and financial condition even after the COVID-19 outbreak has subsided. The extent to which the coronavirus outbreak impacts the Company’s operations, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, we may continue to experience adverse impacts to our business as a result of the virus’s global economic impact, including the availability of credit, adverse impacts on our liquidity and any recession that has occurred or may occur in the future. There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change. The full extent of the impacts on the Company’s operations or the global economy as a whole is not yet known. However, the effects could have a material impact on the Company’s results of operations and heighten other of our known risks described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019.



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




ISSUER PURCHASES OF EQUITY SECURITIES
Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share	(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2020 - January 31, 2020	0	$0.00	0	$	—
February 1, 2020 - February 29, 2020	0	$0.00	0	$	—
March 1, 2020 - March 31, 2020	0	$0.00	0	$	—
Total	0	$0.00	0	$	—

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



ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

None.



ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable.



ITEM 5.	OTHER INFORMATION

None.



ITEM 6.	EXHIBITS

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



Exhibit Index to Quarterly Report on Form 10-Q
Exhibit Number	Description and Filing or Incorporation Reference
10.1	First Amendment to Sixth Amended and Restate Credit Agreement by and between First Mid Bancshares, Inc. and The Northern Trust Company, dated as of April 10, 2020 (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 10, 2020.

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

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

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

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

101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at March 31, 2020 and December 31, 2019, (ii) the Consolidated Statements of Income for the three months ended March 31, 2020 and 2019, (iii) the Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019, and (iv) the Notes to Consolidated Financial Statements.

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: May 4, 2020

Joseph R. Dively

President and Chief Executive Officer

Matthew K. Smith

Chief Financial Officer

TABLE OF CONTENTS

Part I Item 1. Financial Statements Note 1 -- Basis Of Accounting and Consolidation Note 2 -- Earnings Per Share Note 3 -- Investment Securities Note 4 Loans and Allowance For Loan Losses Note 5 -- Goodwill and Intangible Assets Note 6 -- Repurchase Agreements and Other Borrowings Note 7 -- Fair Value Of Assets and Liabilities Note 8 -- Leases Note 9 -- Derivatives Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

10.1 First Amendment to Sixth Amended and Restate Credit Agreement by and between First Mid Bancshares, Inc. and The Northern Trust Company, dated as of April 10, 2020 (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 10, 2020. 31.1 Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

March 31, 2020

March 31, 2019

Operating cash flows from operating leases