FIRST MID BANCSHARES, INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS First Mid Bancshares, Inc. Condensed Consolida ted Balance Sheets (Unaudited) (In thousands, except share data) March 31, 2024 December 31, 2023 Assets Cash and due from banks: Non-interest bearing $ 81,006 $ 122,871 Interest bearing 274,680 11,211 Federal funds sold 15 8,982 Cash and cash equivalents 355,701 143,064 Certificates of deposit 3,745 1,470 Investment securities: Available-for-sale, at fair value (amortized cost of $ 1,342,603 and $ 1,363,721 at March 31, 2024 and December 31, 2023, respectively) 1,139,427 1,171,572 Held-to-maturity, at amortized cost (estimated fair value of $ 2,282 and $ 2,286 at March 31, 2024 and December 31, 2023, respectively) 2,282 2,286 Equity securities, at fair value 4,298 4,074 Loans held for sale 4,817 4,980 Loans 5,494,478 5,575,585 Less allowance for credit losses ( 67,936 ) ( 68,675 ) Net loans 5,426,542 5,506,910 Interest receivable 37,667 35,082 Other real estate owned 1,346 1,163 Premises and equipment, net 101,666 101,396 Goodwill, net 196,461 196,461 Intangible assets, net 64,238 67,770 Bank owned life insurance 167,247 166,125 Right of use lease assets 14,318 14,306 Deferred tax asset, net 69,876 70,067 Other assets 88,615 100,068 Total assets $ 7,678,246 $ 7,586,794 Liabilities and stockholders’ equity Deposits: Non-interest bearing $ 1,448,299 $ 1,398,234 Interest bearing 4,794,637 4,725,425 Total deposits 6,242,936 6,123,659 Securities sold under agreements to repurchase 210,719 213,721 Interest payable 6,318 5,437 FHLB borrowings 238,761 263,787 Junior subordinated debentures, net 24,113 24,058 Subordinated debt, net 106,862 106,755 Lease liabilities 14,624 14,615 Other liabilities 35,961 41,558 Total liabilities 6,880,294 6,793,590 Stockholders’ equity: Common stock ($ 4 par value; authorized 30,000,000 shares; issued 24,541,500 and 24,479,708 shares in 2024 and 2023, respectively; outstanding 23,888,929 and 23,827,137 shares in 2024 and 2023, respectively) 100,166 99,919 Additional paid-in capital 511,785 509,314 Retained earnings 353,694 338,662 Deferred compensation 832 2,629 Accumulated other comprehensive loss ( 147,667 ) ( 136,427 ) Treasury stock, at cost ( 652,571 shares in 2024 and 652,571 shares in 2023) ( 20,858 ) ( 20,893 ) Total stockholders’ equity 797,952 793,204 Total liabilities and stockholders’ equity $ 7,678,246 $ 7,586,794 See accompanying notes to unaudited condensed consolidated financial statements. 2 First Mid Bancshares, Inc. Condensed Consolidated State ments of Income (unaudited) (In thousands, except per share data) Three months ended March 31, (In thousands, except per share data) 2024 2023 Interest income: Interest and fees on loans $ 77,823 $ 56,236 Interest on investment securities 7,405 7,127 Interest on certificates of deposit investments 20 14 Interest on federal funds sold 17 85 Interest on deposits with other financial institutions 2,407 209 Total interest income 87,672 63,671 Interest expense: Interest on deposits 26,096 12,767 Interest on securities sold under agreements to repurchase 2,056 1,463 Interest on FHLB borrowings 2,314 4,874 Interest on other borrowings — 9 Interest on junior subordinated debentures 542 379 Interest on subordinated debentures 1,194 988 Total interest expense 32,202 20,480 Net interest income 55,470 43,191 Provision for credit losses ( 357 ) ( 817 ) Net interest income after provision for credit losses 55,827 44,008 Other income: Wealth management revenues 5,322 5,514 Insurance commissions 9,213 8,480 Service charges 2,956 2,203 Securities gains (losses), net — ( 46 ) Mortgage banking revenue, net 706 150 ATM / debit card revenue 4,055 3,083 Bank owned life insurance 1,121 1,641 Other 1,105 1,454 Total other income 24,478 22,479 Other expense: Salaries and employee benefits 30,448 26,071 Net occupancy and equipment expense 7,560 6,005 Net other real estate owned expense ( 21 ) 133 FDIC insurance 869 463 Amortization of intangible assets 3,497 1,522 Stationery and supplies 391 292 Legal and professional 2,449 1,690 ATM / debit card 1,191 1,223 Marketing and donations 862 654 Other 6,116 3,524 Total other expense 53,362 41,577 Income before income taxes 26,943 24,910 Income taxes 6,440 5,730 Net income $ 20,503 $ 19,180 Per share data: Basic net income per common share $ 0.86 $ 0.94 Diluted net income per common share 0.86 0.93 Cash dividends declared per common share 0.23 0.23 See accompanying notes to unaudited condensed consolidated financial statements. 3 First Mid Bancshares, Inc. Condensed Consolidated Statements o f Comprehensive Income (unaudited) Three months ended March 31, (In thousands) 2024 2023 Net income $ 20,503 $ 19,180 Other comprehensive income (loss) Unrealized gains (losses) on available-for-sale securities, net of tax benefit (expense) of $ 4,225 and ($ 5,544 ) for three months ended March 31, 2024 and 2023, respectively ( 11,240 ) 13,573 Less: reclassification adjustment for realized gains (losses) included in net income, net of tax benefit (expense) of $ 0 and ($ 13 ) for three months ended March 31, 2024 and 2023, respectively — ( 33 ) Other comprehensive income (loss), net of taxes ( 11,240 ) 13,606 Comprehensive income $ 9,263 $ 32,786 See accompanying notes to unaudited condensed consolidated financial statements. 4 First Mid Bancshares, Inc. Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) For the three months ended March 31, 2024 (In thousands) Common Stock Additional Paid-In- Capital Retained Earnings Deferred Compensation Accumulated Other Comprehensive Loss Treasury Stock Total December 31, 2023 $ 99,919 $ 509,314 $ 338,662 $ 2,629 $ ( 136,427 ) $ ( 20,893 ) $ 793,204 Net income — — 20,503 — — — 20,503 Other comprehensive loss, net tax — — — — ( 11,240 ) — ( 11,240 ) Cash dividends on common stock ( 0.23 /share) — — ( 5,471 ) — — — ( 5,471 ) Issuance of 47,580 restricted shares pursuant to 2017 stock incentive plan, net of forfeitures 191 1,401 — — — — 1,592 Issuance of 5,600 common shares pursuant to 2017 stock incentive plan 22 166 — — — — 188 Issuance of 8,612 common shares pursuant to the employee stock purchase plan 34 160 — — — — 194 Deferred compensation — — — ( 2,288 ) — 35 ( 2,253 ) Grant of restricted units pursuant to 2017 stock incentive plan — 1,311 — — — — 1,311 Release of restricted units pursuant to 2017 stock incentive plan — ( 617 ) — — — — ( 617 ) Vested restricted shares/units compensation expense — 50 — 491 — — 541 March 31, 2024 $ 100,166 $ 511,785 $ 353,694 $ 832 $ ( 147,667 ) $ ( 20,858 ) $ 797,952 5 First Mid Bancshares, Inc. Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) For the three months ended March 31, 2023 (In thousands) Common Stock Additional Paid-In- Capital Retained Earnings Deferred Compensation Accumulated Other Comprehensive Loss Treasury Stock Total December 31, 2022 $ 86,366 $ 427,001 $ 289,284 $ 2,064 $ ( 151,507 ) $ ( 20,053 ) $ 633,155 Net income — — 19,180 — — — 19,180 Other comprehensive income, net tax — — — — 13,606 — 13,606 Cash dividends on common stock ( .230 /share) — — ( 4,696 ) — — — ( 4,696 ) Issuance of 55,198 restricted shares pursuant to 2017 stock incentive plan 221 1,423 — — — — 1,644 Issuance of 4,350 common shares pursuant to 2017 stock incentive plan 17 103 — — — — 120 Issuance of 7,963 common shares pursuant to the employee stock purchase plan 32 184 — — — — 216 Purchase of 170 shares of treasury stock — — — — — ( 5 ) ( 5 ) Deferred compensation — — — ( 1,355 ) — 174 ( 1,181 ) Grant of restricted units pursuant to 2017 stock incentive plan — 1,048 — — — — 1,048 Release of restricted units pursuant to 2017 stock incentive plan — ( 1,529 ) — — — — ( 1,529 ) Vested restricted shares/units compensation expense — 53 — 254 — — 307 March 31, 2023 $ 86,636 $ 428,283 $ 303,768 $ 963 $ ( 137,901 ) $ ( 19,884 ) $ 661,865 See accompanying notes to unaudited condensed consolidated financial statements. 6 First Mid Bancshares, Inc. Condensed Consolidated Stateme nts of Cash Flows (unaudited) Three months ended March 31, (In thousands) 2024 2023 Cash flows from operating activities: Net income $ 20,503 $ 19,180 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses ( 357 ) ( 817 ) Depreciation, amortization and accretion, net 5,338 3,485 Change in cash surrender value of bank owned life insurance ( 1,121 ) ( 926 ) Change in bank owned life insurance — ( 715 ) Stock-based compensation expense 606 307 Operating lease payments ( 836 ) ( 781 ) Loss on investment securities, net — 46 (Gain) loss on sales and write downs of other real estate owned, net ( 70 ) 71 Gain on sale of loans held for sale, net ( 233 ) ( 207 ) Increase in accrued interest receivable ( 2,585 ) ( 372 ) Increase in accrued interest payable 910 1,378 Origination of loans held for sale ( 10,448 ) ( 12,191 ) Proceeds from sale of loans held for sale 10,844 11,737 Decrease in other assets 10,537 1,867 Decrease in other liabilities ( 4,040 ) ( 1,757 ) Net cash provided by operating activities 29,048 20,305 Cash flows from investing activities: Purchases of certificates of deposit investments ( 2,275 ) ( 245 ) Proceeds from sales of securities available-for-sale — 6,483 Proceeds from maturities of securities available-for-sale 21,621 19,250 Purchases of securities available-for-sale ( 994 ) ( 1,063 ) Purchase of securities held-to-maturity — ( 25 ) Income increasing amortized cost of HTM securities ( 11 ) — Net decrease in loans 80,542 65,541 Purchases of premises and equipment ( 1,480 ) ( 941 ) Proceeds from sales of other real property owned — 734 Net cash provided by investing activities 97,403 89,734 Cash flows from financing activities: Net increase (decrease) in deposits 119,277 ( 226,223 ) (Decrease) increase in repurchase agreements ( 3,002 ) 7,250 Proceeds from FHLB advances — 170,000 Repayment of FHLB advances ( 25,000 ) ( 40,000 ) Proceeds from issuance of common stock 382 336 Purchase of treasury stock — ( 5 ) Dividends paid on common stock ( 5,471 ) ( 4,696 ) Net cash provided by (used in) financing activities 86,186 ( 93,338 ) Increase in cash and cash equivalents 212,637 16,701 Cash and cash equivalents at beginning of period 143,064 152,433 Cash and cash equivalents at end of period $ 355,701 $ 169,134 See accompanying notes to unaudited condensed consolidated financial statements. 7 First Mid Bancshares, Inc. Condensed Consolidated Statements of Cash Flows (unaudited) Three months ended March 31, (In thousands) 2024 2023 Supplemental disclosures of cash flow information Cash paid during the period for: Interest $ 31,321 $ 19,094 Income taxes ( 823 ) ( 288 ) Supplemental disclosures of noncash investing and financing activities Loans transferred to other real estate $ 183 $ 648 Initial recognition of right-of-use assets 729 — Initial recognition of lease liabilities 729 — 8 Notes to Condensed Consolidated Financial Statements (unaudited) Note 1 -- Basis of Accou nting and Consolidation The unaudited condensed consolidated financial statements include the accounts of First Mid Bancshares, Inc. (“Company”) and its wholly owned subsidiaries: First Mid Bank & Trust, N.A. (“First Mid Bank”), First Mid Wealth Management Company, First Mid Insurance Group, Inc. (“First Mid Insurance”), and First Mid Captive, Inc. All significant intercompany balances and transactions have been eliminated in consolidation. The financial information reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods ended March 31, 2024 and 2023, 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, 2024 presentation and there was no impact on net income or stockholders’ equity. The results of the interim period ended March 31, 2024 are not necessarily indicative of the results expected for the year ending December 31, 2024. The Company operates as a one-segment entity for financial reporting purposes. The 2023 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 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 2023 Annual Report on Form 10-K. Blackhawk Bancorp, Inc. On March 20, 2023, First Mid Bancshares, Inc. (“First Mid”) and Eagle Sub LLC, a newly formed Wisconsin limited liability company and wholly-owned subsidiary of First Mid (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Blackhawk Bancorp, Inc., a Wisconsin corporation (“Blackhawk”), pursuant to which, among other things, First Mid agreed to acquire 100 % of the issued and outstanding shares of Blackhawk pursuant to a business combination whereby Blackhawk will merge with and into Merger Sub, whereupon the separate corporate existence of Blackhawk will cease and Merger Sub will continue as the surviving company and a wholly-owned subsidiary of First Mid (the “Merger”). Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, each share of common stock, par value $ 0.01 per share, of Blackhawk issued and outstanding immediately prior to the effective time of the Merger (other than shares held in treasury by Blackhawk and dissenting shares) were converted into and become the right to receive 1.15 shares of common stock, par value $ 4.00 per share, of First Mid and cash in lieu of fractional shares, less any applicable taxes required to be withheld, and subject to certain potential adjustments. On an aggregate basis, the total consideration payable by First Mid at the closing of the Merger to Blackhawk’s shareholders and equity award holders was 3,290,222 shares of First Mid common stock valued at $ 93.51 million and $ 1,928 of cash in lieu of fractional shares. The Blackhawk Merger closed August 15, 2023 and Blackhawk Bank was merged into First Mid Bank on December 1, 2023. 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. 9 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. Following the stockholders’ approval at the 2021 annual meeting of the Company, a maximum of 399,983 shares of common stock may be issued under the SI Plan. There have been no stock options awarded under any Company plan since 2008. The Company has awarded 53,766 and 60,550 shares of restricted stock during the three months ended March 31, 2024 and 2023, respectively, and 39,150 and 37,900 restricted stock units during the three months ended March 31, 2024 and 2023 , respectively. Employee Stock Purchase Plan At the Annual Meeting of Stockholders held April 25, 2018, the stockholders approved the First Mid-Illinois Bancshares, Inc. Employee Stock Purchase Plan (“ESPP”). The ESPP is intended to promote the interests of the Company by providing eligible employees with the opportunity to purchase shares of common stock of the Company at a 15 % discount through payroll deductions. The ESPP is also intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code. A maximum of 600,000 shares of common stock may be issued under the ESPP. During the three months ended March 31, 2024 and 2023, 8,612 shares and 7,963 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 $ 2,800,000 , 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 farm management services is recorded when the service is complete, for example when crops are sold. 10 Brokerage commissions. Revenue is recorded at the beginning of each quarter through billing to customers based on the account asset size on the last day of the previous quarter. If a withdrawal of funds takes place, a prorated refund may occur; this is reflected within the same quarter as the original billing occurred. All performance obligations are met within the same quarter that the revenue is recorded. Insurance commissions. The Company’s insurance agency subsidiary, First Mid Insurance, receives commissions on premiums of new and renewed business policies. First Mid Insurance records commission revenue on direct bill policies as the cash is received. For agency bill policies, First Mid Insurance retains its commission portion of the customer premium payment and remits the balance to the carrier. In both cases, the entire performance obligation is held by the carriers. Service charges on deposits. The Company generates revenue from fees charged for deposit account maintenance, overdrafts, wire transfers, and check fees. The revenue related to deposit fees is recognized at the time the performance obligation is satisfied. ATM/debit card revenue. The Company generates revenue through service charges on the use of its ATM machines and interchange income from the use of Company issued credit and debit cards. The revenue is recognized at the time the service is used and the performance obligation is satisfied. Other income. Treasury management fees and lock box fees are received and recorded after the service performance obligation is completed. Merchant bank card fees are received from various vendors; however, the performance obligation is with the vendors. The Company records gains on the sale of loans and the sale of OREO properties after the transactions are complete and transfer of ownership has occurred. As each of the Company’s facilities is in markets with similar economies, no disaggregation of revenue is necessary. Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss included in stockholders’ equity as of March 31, 2024 and December 31, 2023 are as follows (in thousands): Unrealized Losses on Securities March 31, 2024 Net unrealized losses on securities available-for-sale $ ( 203,177 ) Tax benefit 55,510 Balance at March 31, 2024 $ ( 147,667 ) December 31, 2023 Net unrealized losses on securities available-for-sale $ ( 192,149 ) Tax benefit 55,722 Balance at December 31, 2023 $ ( 136,427 ) Amounts reclassified from accumulated other comprehensive loss and the affected line items in the statements of income during the three months ended March 31, 2024 and 2023, were as follows (in thousands): Amounts Reclassified from Other Comprehensive Income (Loss) Three months ended March 31, 2024 2023 Affected Line Item in the Statements of Income Realized gain (loss) on available-for-sale securities $ — $ ( 46 ) Securities (loss) gain, net Tax effect — 13 Income taxes Total reclassifications out of accumulated other comprehensive income (loss) $ — $ ( 33 ) Net reclassified amount See “Note 3 – Investment Securities” for more detailed information regarding unrealized losses on available-for-sale securities. 11 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 months ended March 31, 2024 and 2023 were as follows: Three months ended March 31, 2024 2023 Basic net income per common share Available to common stockholders: Net income $ 20,503,000 $ 19,180,000 Weighted average common shares outstanding 23,872,731 20,492,254 Basic earnings per common share $ 0.86 $ 0.94 Diluted net income per common share Available to common stockholders: Net income applicable to diluted earnings per share $ 20,503,000 $ 19,180,000 Weighted average common shares outstanding 23,872,731 20,492,254 Dilutive potential common shares: restricted stock awarded 87,604 71,718 Diluted weighted average common shares outstanding 23,960,335 20,563,972 Diluted earnings per common share $ 0.86 $ 0.93 There were no shares excluded when computing diluted earnings per share for the three months ended March 31, 2024 and 2023 because they were anti-dilutive. 12 Note 3 -- Investment Securities The amortized cost, gross unrealized gains and losses and estimated fair values for available-for-sale and held-to-maturity securities by major security type at March 31, 2024 and December 31, 2023 were as follows (in thousands): Amortized Cost Gross Unrealized Gains Gross Unrealized (Losses) Fair Value March 31, 2024 Available-for-sale: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 234,540 $ — $ ( 27,220 ) $ 207,320 Obligations of states and political subdivisions 335,350 84 ( 52,864 ) 282,570 Mortgage-backed securities: GSE residential 699,921 854 ( 119,771 ) 581,004 Other securities 72,792 — ( 4,259 ) 68,533 Total available-for-sale $ 1,342,603 $ 938 $ ( 204,114 ) $ 1,139,427 Held-to-maturity: Other investments $ 2,282 $ — $ — $ 2,282 Total held-to-maturity $ 2,282 $ — $ — $ 2,282 December 31, 2023 Available-for-sale: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 237,875 $ — $ ( 26,219 ) $ 211,656 Obligations of states and political subdivisions 337,835 152 ( 49,371 ) 288,616 Mortgage-backed securities: GSE residential 714,216 1,158 ( 113,074 ) 602,300 Other securities 73,795 — ( 4,795 ) 69,000 Total available-for-sale $ 1,363,721 $ 1,310 $ ( 193,459 ) $ 1,171,572 Held-to-maturity: Other investments $ 2,286 $ — $ — $ 2,286 Total held-to-maturity $ 2,286 $ — $ — $ 2,286 The Company also had $ 4,298,000 and $ 4,074,000 of equity securities, at fair value, as of March 31, 2024 and December 31, 2023, respectively. The Company's held-to-maturity securities are annuities for which the risk of loss is minimal. As such, as of March 31, 2024, the Company did not record an allowance for credit losses on its held-to-maturity securities. Realized gains and losses resulting from sales of securities were as follows during the three months ended March 31, 2024 and 2023 (in thousands): Three months ended March 31, 2024 2023 Gross gains $ — $ 6 Gross losses — ( 52 ) 13 The following table indicates the expected maturities of investment securities classified as available-for-sale presented at fair value, and held-to-maturity presented at amortized cost, at March 31, 2024 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 $ 181,730 $ 25,590 $ — $ — $ 207,320 Obligations of state and political subdivisions 21,240 102,416 157,672 1,242 282,570 Mortgage-backed securities: GSE residential 2,280 6,030 33,981 538,713 581,004 Other securities 27,942 39,838 753 — 68,533 Total available-for-sale investments $ 233,192 $ 173,874 $ 192,406 $ 539,955 $ 1,139,427 Weighted average yield 1.75 % 2.62 % 2.25 % 1.82 % 2.00 % Full tax-equivalent yield 1.75 % 2.63 % 2.22 % 1.84 % 2.00 % Held to maturity: Other investments $ — $ — $ — $ 2,282 $ 2,282 Total held-to-maturity $ — $ — $ — $ 2,282 $ 2,282 Weighted average yield — % — % — % — % — % Full tax-equivalent yield — % — % — % — % — % The weighted average yields are calculated based on the amortized cost and effective yields weighted for the scheduled maturity of each security. Tax-equivalent yields have been calculated using a 21 % 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, 2024. Investment securities carried at approximately $ 820 million and $ 831 million at March 31, 2024 and December 31, 2023, 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, 2024 and December 31, 2023 (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, 2024 Available-for-sale: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 1,295 $ — $ 206,025 $ ( 27,220 ) $ 207,320 $ ( 27,220 ) Obligations of states and political subdivisions 27,302 ( 324 ) 248,168 ( 52,540 ) 275,470 ( 52,864 ) Mortgage-backed securities: GSE residential 5,773 ( 132 ) 545,899 ( 119,639 ) 551,672 ( 119,771 ) Other securities 5,337 ( 413 ) 57,446 ( 3,846 ) 62,783 ( 4,259 ) Total $ 39,707 $ ( 869 ) $ 1,057,538 $ ( 203,245 ) $ 1,097,245 $ ( 204,114 ) December 31, 2023 Available-for-sale: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 1,288 $ ( 4 ) $ 210,069 $ ( 26,215 ) $ 211,357 $ ( 26,219 ) Obligations of states and political subdivisions 22,281 ( 333 ) 241,630 ( 49,038 ) 263,911 ( 49,371 ) Mortgage-backed securities: GSE residential 5,818 ( 67 ) 566,197 ( 113,007 ) 572,015 ( 113,074 ) Other securities 5,311 ( 439 ) 57,939 ( 4,356 ) 63,250 ( 4,795 ) Total $ 34,698 $ ( 843 ) $ 1,075,835 $ ( 192,616 ) $ 1,110,533 $ ( 193,459 ) 14 U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies. At March 31, 2024 there were six hundred twenty-five available-for-sale securities with a fair value of $ 206.0 million and unrealized losses of $ 27.2 million in a continuous unrealized loss position for twelve months or more. At December 31, 2023, there were thirty-six available-for-sale securities with a fair value of $ 210.1 million and unrealized losses of $ 26.2 million in a continuous unrealized loss position for twelve months or more. There were no held-to-maturity U.S. Treasury securities and obligations of U.S. government corporations and agencies in a continuous unrealized loss position for twelve months or more. Obligations of states and political subdivisions. At March 31, 2024, there were two hundred fifty-five obligations of states and political subdivisions with a fair value of $ 248.2 million and unrealized losses of $ 52.5 million in a continuous unrealized loss position for twelve months or more. At December 31, 2023 there were two hundred thirty-seven obligations of states and political subdivisions with a fair value of $ 241.6 million and unrealized losses of $ 49.0 million in a continuous unrealized loss position for twelve months or more. Mortgage-backed Securities: GSE Residential. At March 31, 2024, there were two hundred sixty-three mortgage-backed securities with a fair value of $ 545.9 million and unrealized losses of $ 119.6 million in a continuous unrealized loss position for twelve months or more. At December 31, 2023, there were two hundred sixty-three mortgage-backed securities with a fair value of $ 566.2 million and unrealized losses of $ 113.0 million in a continuous unrealized loss position for twelve months or more. Other securities. At March 31, 2024, there were forty-two other securities with a fair value of $ 57.4 million and unrealized losses of $ 3.8 million in a continuous unrealized loss position for twelve months or more. At December 31, 2023, there were forty-three other securities with a fair value of $ 57.9 million and unrealized losses of $ 4.4 million in a continuous unrealized loss position for twelve months or more. Note 4 – Loans and Allowance for Credit Losses Loans are stated at amortized cost net of an allowance for credit losses. Amortized cost is the unpaid principal net of unearned premiums and discounts, and net deferred origination fees and costs. Deferred loan origination fees are reduced by loan origination costs and are amortized to interest income over the life of the related loan using methods that approximated the effective interest rate method. Interest on substantially all loans is credited to income based on the principal amount outstanding. A summary of loans at March 31, 2024 and December 31, 2023 follows (in thousands): March 31, 2024 December 31, 2023 Construction and land development $ 188,662 $ 207,033 Agricultural real estate 389,691 392,265 1-4 family residential properties 525,532 549,843 Multifamily residential properties 315,024 321,537 Commercial real estate 2,424,919 2,416,294 Loans secured by real estate 3,843,828 3,886,972 Agricultural loans 213,171 196,202 Commercial and industrial loans 1,234,776 1,273,637 Consumer loans 80,514 92,142 All other loans 175,318 184,609 Total gross loans 5,547,607 5,633,562 Less: loans held for sale 4,817 4,980 5,542,790 5,628,582 Less: Net deferred loan fees, premiums and discounts 48,312 52,997 Allowance for credit losses 67,936 68,675 Net loans $ 5,426,542 $ 5,506,910 Loans expected to be sold are classified as held for sale in the consolidated financial statements and are recorded at fair value, taking into consideration future commitments to sell the loans. These loans are primarily for 1-4 family residential properties. Accrued interest on loans, which is excluded from the amortized cost of the balances above, totaled $ 31.3 million and $ 29.9 million at March 31, 2024 and December 31, 2023, respectively. 15 Most of the Company’s business activities are with customers located near the Company's branch locations in Illinois, Missouri, Texas, and Wisconsin. At March 31, 2024, the Company’s loan portfolio included $ 602.9 million of loans to borrowers whose businesses are directly related to agriculture. Of this amount, $ 488.5 million was concentrated in corn and other grain farming. Total loans to borrowers whose businesses are directly related to agriculture increased $ 14.4 million from $ 588.5 million at December 31, 2023 due to seasonal timing of cash flow requirements. Loans concentrated in corn and other grain farming increased $ 16.0 million from $ 472.5 million at December 31, 2023. The Company's underwriting practices include collateralization of loans. Any extended period of low commodity prices, drought conditions, significantly reduced yields on crops and/or reduced levels of government assistance to the agricultural industry could result in an increase in the level of problem agriculture loans and potentially result in loan losses within the agricultural portfolio. The Company also has $ 1.06 billion of loans to lessors of non-residential buildings, and $ 549.3 million of loans to lessors of residential buildings and dwellings. The structure of the Company’s loan approval process is based on progressively larger lending authorities granted to individual loan officers, loan committees, and ultimately the board of directors. Outstanding balances to one borrower or affiliated borrowers are limited by federal regulation and most borrowers are below regulatory thresholds. The Company can occasionally have outstanding balances to one borrower up to but not exceeding the regulatory threshold should underwriting guidelines warrant. Most of the Company’s loans are to businesses located in 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 or twenty five years , depending on the loan-to-value. The Company’s commercial real estate portfolio is below the thresholds that would designate a concentration in commercial real estate lending, as established by the federal banking regulators. Commercial and Industrial Loans. Commercial and industrial loans are primarily comprised of working capital loans used to purchase inventory and fund accounts receivable that are secured by business assets other than real estate. These loans are generally written for one year or less. Also, equipment financing is provided to businesses with these loans generally limited to 80 % 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. 16 Residential Real Estate Loans. Residential real estate loans generally include loans for the purchase or refinance of residential real estate properties consisting of one-to-four units and home equity loans and lines of credit. The Company sells most of its long-term fixed rate residential real estate loans to secondary market investors. The Company also releases the servicing of these loans upon sale. Residential real estate loans are typically underwritten to conform to industry standards including criteria for maximum debt-to-income and loan-to-value ratios as well as minimum credit scores. Loans secured by first liens on residential real estate held in the portfolio typically do not exceed 80 % 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 modified loans, trends in volumes and terms of loans, effects of changes in risk selection and underwriting standards or lending practices, lending staff changes, concentrations of credit, industry conditions and the current economic conditions in the region where the Company operates. The Company estimates the appropriate level of allowance for credit losses by evaluating large individually evaluated loans separately from non-individually evaluated loans. Individually Evaluated Loans The Company individually evaluates certain loans for impairment. In general, these loans have been internally identified via the Company’s loan grading system as credits requiring management’s attention due to underlying problems in the borrower’s business or collateral concerns. This evaluation considers expected future cash flows, the value of collateral and other factors that may impact the borrower’s ability to make payments when due. For loans greater than $ 250,000 , 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-Individually Evaluated Loans Non-individually evaluated loans comprise the vast majority of the Company’s total loan portfolio and include loans in accrual status and those credits not identified as modified loans. A small portion of these loans are considered “criticized” due to the risk rating assigned reflecting elevated credit risk due to characteristics, such as a strained cash flow position, associated with the individual borrowers. Criticized loans are those assigned risk ratings of Special Mention, Substandard, or Doubtful. To determine the allowance, the loan portfolio is segmented based on similar risk characteristics. The allowance for credit losses is estimated using a discounted cash flow (DCF) methodology. The DCF projects future cash flows over the life of the loan portfolio. Probability of default (PD) and loss given default (LGD) are key components in calculating expected losses in this model. The PD is forecasted using a regression model that determines the likelihood of default with a forward-looking forecast of unemployment rates. The LGD is the percentage of defaulted loans that is ultimately charged off. The allowance is calculated as the net present value of the expected cash flows less the amortized cost basis of the loans. Prior to 2022, the allowance for credit losses was measured on a collective (pool) basis for non-individually evaluated loans with similar risk characteristics. Historical credit loss experience provided the basis for the estimate of expected credit losses. Adjustments to expected losses are made using qualitative factors for relevant to each loan segment including merger & acquisition activity, economic conditions, changes in policies, procedures & underwriting, 17 and concentrations. In addition, a forecast, using reasonable and supportable future conditions, is prepared that is used to estimate expected changes to existing and historical conditions in the current period. The Company also considers specific current economic events occurring globally, in the U.S. and in its local markets. Events considered include the status of trade agreements with China, scheduled increases in minimum wage and changes to the minimum salary threshold for overtime provisions, current and projected unemployment rates, current and projected grain and oil prices and economies of local markets where customers work and operate. Within each pool, risk elements are evaluated that have specific impacts to the borrowers within the pool. These, along with the general risks and events, and the specific lending policies and procedures by loan type described above, are analyzed to estimate the qualitative factors used to adjust the historical loss rates. During the current period, the following assumptions and factors were considered when determining the historical loss rate and any potential adjustments by loan pool. Construction and Land Development Loans. Historical losses in this segment remain very low. While staffing shortages and supply chain disruptions cause risk in this segment, most projects are associated with financially strong borrowers. The qualitative factors for this segment were increased due to higher levels of loans compared to the Company's internal policy limits Agricultural Real Estate Loans. Historical losses in the segment remain very low. Farmland values have increased over an extended period of time and remained stable over the last year. There was no change to the qualitative factors for this segment. 1- 4 Family Residential Properties Loans. The loan segment has remained stable throughout the last several years. Both adversely classified and past dues have been consistent. There was no change to the qualitative factors for this segment. Commercial Real Estate Loans. This segment includes the Company's largest balances and the largest allowance for credit losses. The qualitative factors on non-owner occupied loans for this segment were increased due to the economic uncertainty and rate repricing risks in today's market along with the level of balances compared to the Company's internal policy limits. Agricultural Loans. Losses in this segment are very low. Commodity prices have been volatile and yield expectations have been lowered due to the lack of rain. The qualitative factors of this segment were increased due to this higher level of risk. Commercial and Industrial Loans. This segment includes the second largest balance of allowance for credit losses. The qualitative factors for this segment were not changed in the periods . Most of the repricing for higher rates in this loan segment has already occurred. Consumer Loans. This segment is the smallest portion of the Company's loan portfolio. This segment is anticipated to be impacted by any recession that may appear. In addition, the risk has increased for cash flow challenges for any borrower who have student loans that have been or will soon be returned to payments. The qualitative factors for this segment were not changed on a net basis in the period. Higher risk due to macro-economic conditions were offset by a decline in the severity of past dues for the loan segment. Acquired Loans. Prior to January 1, 2020 loans acquired with evidence of credit deterioration since origination and for which it was probable that all contractually required payments would not be collected were considered purchased credit impaired at the time of acquisition. Purchase credit-impaired ("PCI") loans were accounted for under ASC 310-30, Receivables--Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 310-30"), and were initially measured at fair value, which included the estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans was not carried over and recorded at the acquisition date. The cash flows expected to be collected were estimated using current key assumptions, such as default rates, value of underlying collateral, severity and prepayment speeds. Subsequent to January 1, 2020, loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered purchased credit deteriorated (“PCD”) loans. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. This initial allowance for credit losses is allocated to individual PCD loans and added to the purchase price or acquisition date fair values to establish the initial amortized cost basis of the PCD loans. As the initial allowance for credit losses is added to the purchase price, there is no credit loss expense recognized upon acquisition of a PCD loan. Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to noncredit factors and results in a discount or premium. Discounts and premiums are recognized through interest income on a level-yield method over the life of the loans. 18 For acquired loans not deemed purchased credit deteriorated at acquisition, the differences between the initial fair value and the unpaid principal balance are recognized as interest income on a level-yield basis over the lives of the related loans. At the acquisition date, an initial allowance for expected credit losses is estimated and recorded as credit loss expense. The subsequent measurement of expected credit losses for all acquired loans is the same as the subsequent measurement of expected credit losses for originated loans. The following table presents the activity in the allowance for credit losses based on portfolio segment for the three months ended March 31, 2024 (in thousands): Construction and Land Development Agricultural Real Estate 1-4 Family Residential Properties Commercial Real Estate Agricultural Loans Commercial and Industrial Consumer Loans Total Three months ended March 31, 2024 Beginning balance $ 2,918 $ 1,366 $ 4,220 $ 31,758 $ 705 $ 25,450 $ 2,258 $ 68,675 Initial allowance on loans purchased with credit deterioration — — — — — — — — Provision for credit loss expense ( 217 ) ( 8 ) ( 424 ) 618 125 ( 609 ) 158 ( 357 ) Loans charged off — — 67 — 52 274 426 819 Recoveries collected — — 49 161 — 64 163 437 Ending balance $ 2,701 $ 1,358 $ 3,778 $ 32,537 $ 778 $ 24,631 $ 2,153 $ 67,936 The following tables present the activity in the allowance for credit losses based on portfolio segment for the three months ended March 31, 2023 and for the year ended December 31, 2023 (in thousands): Construction and Land Development Agricultural Real Estate 1-4 Family Residential Properties Commercial Real Estate Agricultural Loans Commercial and Industrial Consumer Loans Total Three months ended March 31, 2023 Beginning balance $ 2,250 $ 1,433 $ 3,742 $ 28,157 $ 585 $ 20,808 $ 2,118 $ 59,093 Initial allowance on loans purchased with credit deterioration — — — — — — — — Provision for credit loss expense 176 ( 29 ) ( 306 ) ( 834 ) ( 8 ) 91 93 ( 817 ) Loans charged off — — 40 — — 13 427 480 Recoveries collected — — 24 4 3 256 140 427 Ending balance $ 2,426 $ 1,404 $ 3,420 $ 27,327 $ 580 $ 21,142 $ 1,924 $ 58,223 Twelve months ended December 31, 2023 Beginning Balance $ 2,250 $ 1,433 $ 3,742 $ 28,157 $ 585 $ 20,808 $ 2,118 $ 59,093 Initial allowance on loans purchased with credit deterioration 308 — 124 1,066 — 2,273 20 3,791 Provision for credit loss expense 374 ( 67 ) 225 1,755 490 2,322 1,005 6,104 Loans charged off 14 — 87 25 408 529 1,568 2,631 Recoveries collected — — 216 805 38 576 683 2,318 Ending balance $ 2,918 $ 1,366 $ 4,220 $ 31,758 $ 705 $ 25,450 $ 2,258 $ 68,675 Consistent with regulatory guidance, charge-offs on all loan segments are taken when specific loans, or portions thereof, are considered uncollectible. The Company’s policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined. For all loan portfolio segments except 1-4 family residential properties and consumer, the Company promptly charges-off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For individually evaluated loans that are considered solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral. 19 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 time frames established by applicable regulatory guidance which provides for the charge-down of 1-4 family first and junior lien mortgages to the net realizable value less costs to sell when the loan is 180 days past due, charge-off of unsecured open-end loans when the loan is 180 days past due, and charge down to the net realizable value when other secured loans are 120 days past due. Loans at these respective delinquency thresholds for which the Company can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged off. The following table presents the amortized cost basis of collateral-dependent loans by class of loans that were individually evaluated to determine expected credit losses, and the related allowance for credit losses, as of March 31, 2024 (in thousands): Collateral Allowance Real Estate Business Assets Other Total for Credit Losses Construction and land development $ 406 $ — $ — $ 406 $ 175 1-4 family residential properties 1,174 — — 1,174 — Multifamily residential properties 1,066 — — 1,066 — Commercial real estate 8,349 — — 8,349 133 Loans secured by real estate 10,995 — — 10,995 308 Agricultural loans — — — — — Commercial and industrial loans — 506 — 506 — Consumer loans — — — — — Total loans $ 10,995 $ 506 $ — $ 11,501 $ 308 Credit Quality The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, collateral support, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a continuous basis. The Company uses the following definitions for risk ratings which are commensurate with a loan considered “criticized”: Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Substandard. Loans classified as substandard are inadequately protected by the current sound-worthiness and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, based on currently existing factors, conditions and values, highly questionable and improbable. Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered pass rated loans. 20 The following tables present the credit risk profile of the Company’s loan portfolio on amortized cost basis based on risk rating category and year of origination as of March 31, 2024 (in thousands): Term Loans by Origination Year Revolving Risk rating 2024 2023 2022 2021 2020 Prior Loans Total March 31, 2024 Construction and land development loans Pass $ 3,584 $ 81,753 $ 56,302 $ 16,509 $ 5,781 $ 22,499 $ — $ 186,428 Special mention — — — — — — — — Substandard — — — — — 423 — 423 Total $ 3,584 $ 81,753 $ 56,302 $ 16,509 $ 5,781 $ 22,922 $ — $ 186,851 Current period gross writeoffs $ — $ — $ — $ — $ — $ — $ — $ — Agricultural real estate loans Pass $ 8,930 $ 18,867 $ 162,999 $ 56,265 $ 52,598 $ 83,981 $ — $ 383,640 Special mention 1,170 202 — 628 — 1,864 — 3,864 Substandard — — — 367 — 1,070 — 1,437 Total $ 10,100 $ 19,069 $ 162,999 $ 57,260 $ 52,598 $ 86,915 $ — $ 388,941 Current period gross writeoffs $ — $ — $ — $ — $ — $ — $ — $ — 1-4 family residential property loans Pass $ 18,806 $ 58,463 $ 95,956 $ 94,556 $ 78,221 $ 83,227 $ 70,050 $ 499,279 Special mention — — 853 3,143 — 3,847 — 7,843 Substandard 26 113 920 514 553 8,817 576 11,519 Total $ 18,832 $ 58,576 $ 97,729 $ 98,213 $ 78,774 $ 95,891 $ 70,626 $ 518,641 Current period gross writeoffs $ — $ 36 $ — $ — $ — $ 31 $ — $ 67 Commercial real estate loans Pass $ 9,482 $ 206,109 $ 706,392 $ 570,053 $ 321,198 $ 865,221 $ — $ 2,678,455 Special mention 10 3,634 2,854 1,716 824 8,647 — 17,685 Substandard — — 3,761 450 10 8,489 — 12,710 Total $ 9,492 $ 209,743 $ 713,007 $ 572,219 $ 322,032 $ 882,357 $ — $ 2,708,850 Current period gross writeoffs $ — $ — $ — $ — $ — $ — $ — $ — Agricultural loans Pass $ 38,758 $ 121,171 $ 30,478 $ 16,192 $ 3,396 $ 1,852 $ — $ 211,847 Special mention — 11 — — — 748 — 759 Substandard — 221 368 — 6 16 — 611 Total $ 38,758 $ 121,403 $ 30,846 $ 16,192 $ 3,402 $ 2,616 $ — $ 213,217 Current period gross writeoffs $ — $ — $ — $ 52 $ — $ — $ — $ 52 Commercial and industrial loans Pass $ 33,234 $ 278,618 $ 305,634 $ 233,432 $ 139,860 $ 375,188 $ — $ 1,365,966 Special mention 103 1,061 1,528 7,073 1,359 24,394 — 35,519 Substandard — — 597 351 44 749 — 1,741 Total $ 33,337 $ 279,679 $ 307,759 $ 240,856 $ 141,263 $ 400,331 $ — $ 1,403,226 Current period gross writeoffs $ — $ — $ — $ 273 $ — $ 1 $ — $ 274 Consumer loans Pass $ 1,612 $ 8,161 $ 36,304 $ 17,758 $ 8,383 $ 6,473 $ — $ 78,691 Special mention — — 23 — — — — 23 Substandard — 50 338 241 141 85 — 855 Total $ 1,612 $ 8,211 $ 36,665 $ 17,999 $ 8,524 $ 6,558 $ — $ 79,569 Current period gross writeoffs $ — $ 3 $ 51 $ 81 $ — $ 291 $ — $ 426 Total loans Pass $ 114,406 $ 773,142 $ 1,394,065 $ 1,004,765 $ 609,437 $ 1,438,441 $ 70,050 $ 5,404,306 Special mention 1,283 4,908 5,258 12,560 2,183 39,500 — 65,693 Substandard 26 384 5,984 1,923 754 19,649 576 29,296 Total $ 115,715 $ 778,434 $ 1,405,307 $ 1,019,248 $ 612,374 $ 1,497,590 $ 70,626 $ 5,499,295 Current period gross writeoffs $ — $ 39 $ 51 $ 406 $ — $ 323 $ — $ 819 21 The following tables present the credit risk profile of the Company’s loan portfolio based on risk rating category as of December 31, 2023 (in thousands): Term Loans by Origination Year Revolving Risk rating 2023 2022 2021 2020 2019 Prior Loans Total December 31, 2023 Construction and land development loans Pass $ 68,086 $ 74,065 $ 27,392 $ 5,188 $ 10,795 $ 19,115 $ — $ 204,641 Special mention — — — — — — — — Substandard — — — — — 436 — 436 Total $ 68,086 $ 74,065 $ 27,392 $ 5,188 $ 10,795 $ 19,551 $ — $ 205,077 Current period gross writeoffs $ — $ — $ — $ — $ 14 $ — $ — $ 14 Agricultural real estate loans Pass $ 19,231 $ 164,812 $ 57,815 $ 53,249 $ 19,419 $ 71,189 $ — $ 385,715 Special mention 206 — 627 — 1,170 1,868 — 3,871 Substandard — — 371 — — 1,175 — 1,546 Total $ 19,437 $ 164,812 $ 58,813 $ 53,249 $ 20,589 $ 74,232 $ — $ 391,132 Current period gross writeoffs $ — $ — $ — $ — $ — $ — $ — $ — 1-4 family residential property loans Pass $ 66,119 $ 96,995 $ 79,085 $ 73,073 $ 26,854 $ 105,257 $ 75,700 $ 523,083 Special mention — 967 3,184 — — 3,804 10 7,965 Substandard 152 759 460 396 288 8,865 501 11,421 Total $ 66,271 $ 98,721 $ 82,729 $ 73,469 $ 27,142 $ 117,926 $ 76,211 $ 542,469 Current period gross writeoffs $ 10 $ — $ — $ — $ 14 $ 63 $ — $ 87 Commercial real estate loans Pass $ 185,628 $ 680,099 $ 548,733 $ 317,075 $ 239,323 $ 701,464 $ — $ 2,672,322 Special mention 3,666 2,706 1,317 2,159 1,563 7,778 — 19,189 Substandard — 3,899 520 20 775 7,108 — 12,322 Total $ 189,294 $ 686,704 $ 550,570 $ 319,254 $ 241,661 $ 716,350 $ — $ 2,703,833 Current period gross writeoffs $ — $ — $ — $ — $ 25 $ — $ — $ 25 Agricultural loans Pass $ 147,993 $ 27,895 $ 10,044 $ 2,549 $ 1,883 $ 5,854 $ — $ 196,218 Special mention 6 10 — — 38 — — 54 Substandard — — — — — — — — Total $ 147,999 $ 27,905 $ 10,044 $ 2,549 $ 1,921 $ 5,854 $ — $ 196,272 Current period gross writeoffs $ — $ 276 $ — $ — $ — $ 132 $ — $ 408 Commercial and industrial loans Pass $ 290,304 $ 306,794 $ 232,198 $ 154,499 $ 73,906 $ 347,957 $ — $ 1,405,658 Special mention 1,047 1,857 9,982 562 597 28,900 — 42,945 Substandard — 537 791 58 29 750 — 2,165 Total $ 291,351 $ 309,188 $ 242,971 $ 155,119 $ 74,532 $ 377,607 $ — $ 1,450,768 Current period gross writeoffs $ — $ 353 $ — $ 49 $ 20 $ 107 $ — $ 529 Consumer loans Pass $ 9,547 $ 40,225 $ 21,264 $ 10,387 $ 4,475 $ 4,035 $ — $ 89,933 Special mention — 26 — — — — — 26 Substandard 86 405 325 139 59 41 — 1,055 Total $ 9,633 $ 40,656 $ 21,589 $ 10,526 $ 4,534 $ 4,076 $ — $ 91,014 Current period gross writeoffs $ 22 $ 177 $ 89 $ 10 $ 7 $ 1,075 $ — $ 1,380 Total loans Pass $ 786,908 $ 1,390,885 $ 976,531 $ 616,020 $ 376,655 $ 1,254,871 $ 75,700 $ 5,477,570 Special mention 4,925 5,566 15,110 2,721 3,368 42,350 10 74,050 Substandard 238 5,600 2,467 613 1,151 18,375 501 28,945 Total $ 792,071 $ 1,402,051 $ 994,108 $ 619,354 $ 381,174 $ 1,315,596 $ 76,211 $ 5,580,565 Current period gross writeoffs $ 10 $ 761 $ 208 $ 51 $ 93 $ 1,508 $ — $ 2,631 22 The following table presents the Company’s loan portfolio aging analysis at March 31, 2024 and December 31, 2023 (in thousands): 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total Loans Receivable Total Loans > 90 Days and Accruing March 31, 2024 Construction and land development $ — $ — $ 450 $ 450 $ 186,401 $ 186,851 $ — Agricultural real estate — — 1 1 388,940 388,941 — 1-4 family residential properties 1,965 1,227 1,179 4,371 514,270 518,641 — Multifamily residential properties — — 551 551 312,207 312,758 — Commercial real estate 1,784 4,319 3,852 9,955 2,386,137 2,396,092 — Loans secured by real estate 3,749 5,546 6,033 15,328 3,787,955 3,803,283 — Agricultural loans — 25 596 621 212,596 213,217 — Commercial and industrial loans 228 261 889 1,378 1,226,528 1,227,906 — Consumer loans 245 31 216 492 79,077 79,569 — All other loans — — — — 175,320 175,320 — Total loans $ 4,222 $ 5,863 $ 7,734 $ 17,819 $ 5,481,476 $ 5,499,295 $ — December 31, 2023 Construction and land development $ — $ 585 $ 450 $ 1,035 $ 204,042 $ 205,077 $ — Agricultural real estate — — 1 1 391,131 391,132 — 1-4 family residential properties 3,054 530 1,018 4,602 537,867 542,469 — Multifamily residential properties 150 — 551 701 318,428 319,129 — Commercial real estate 819 74 3,765 4,658 23,800,446 2,384,704 — Loans secured by real estate 4,023 1,189 5,785 10,997 3,831,514 3,842,511 — Agricultural loans — — — — 196,272 196,272 — Commercial and industrial loans 673 73 1,531 2,277 1,263,882 1,266,159 — Consumer loans 983 162 330 1,475 89,539 91,014 — All other loans — — — — 184,609 184,609 — Total loans $ 5,679 $ 1,424 $ 7,646 $ 14,749 $ 5,565,816 $ 5,580,565 $ — Individually Evaluated Loans Within all loan portfolio segments, loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified due date. Impaired loans, excluding certain modified, are placed on nonaccrual status. Impaired loans include nonaccrual loans and loans modified in restructuring where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. It is the Company’s policy to have any restructured loans which are on nonaccrual status prior to being modified remain on nonaccrual status until, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. If the restructured loan is on accrual status prior to being modified, the loan is reviewed to determine if the modified loan should remain on accrual status. 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 modified is recognized on an accrual basis in accordance with the restructured terms if the loan is in compliance with the modified terms. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. The Company requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status. The amount of interest income recognized by the Company within the periods stated above was due to loans modified in restructuring that remain on accrual status. 23 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, 2024 and December 31, 2023 (in thousands). There were no loans past due over eighty-nine days that were still accruing. March 31, 2024 December 31, 2023 Nonaccrual with no Allowance for Total Nonaccrual with no Allowance for Total Credit Loss Nonaccrual Credit Loss Nonaccrual Construction and land development $ — $ — $ — $ — Agricultural real estate 1,135 1,135 1,146 1,146 1-4 family residential properties 4,705 4,964 4,679 4,940 Multifamily residential properties — — — — Commercial real estate 9,463 10,105 10,237 10,237 Loans secured by real estate 15,303 16,204 16,062 16,323 Agricultural loans 596 596 — — Commercial and industrial loans 1,501 1,501 1,931 1,931 Consumer loans 492 492 578 578 All other loans — — — — Total loans $ 17,892 $ 18,793 $ 18,571 $ 18,832 Interest income that would have been recorded under the original terms of such nonaccrual loans totaled $ 267,000 and $ 79,000 for the three months ended March 31, 2024 and 2023, respectively. Loan Modification Disclosures Pursuant to ASU 2022-02 The following table shows the amortized cost of loans at March 31, 2024 and 2023 that were both experiencing financial difficulty and modified segregated by portfolio segment and type of modification. The percentage of the amortized cost of loans that were modified to borrowers in financial distress as compared to outstanding loans is also presented below. Total Payment Term Interest Class of Principal Delay Extension Rate Financing Forgiveness Investment Modifications Reduction Receivable March 31, 2024 Agricultural real estate $ — $ 325 $ — $ — 0.01 % 1-4 family residential properties — 52 795 — 0.02 % Commercial real estate — 719 126 532 0.03 % Loans secured by real estate — 1,096 921 532 0.05 % Commercial and industrial loans — 185 196 — 0.01 % Consumer loans — 6 12 — — % Total $ — $ 1,287 $ 1,129 $ 532 0.05 % March 31, 2023 Agricultural real estate $ — $ 347 $ — $ — 0.09 % 1-4 family residential properties — 62 880 — 0.22 % Commercial real estate — 826 91 — 0.05 % Loans secured by real estate — 1,235 971 — 0.07 % Commercial and industrial loans — 421 319 — 0.07 % Consumer loans — 8 45 — 0.06 % Total $ — $ 1,664 $ 1,335 $ — 0.06 % 24 The Company closely monitors the performance of loans that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table shows the performance of such loans that have been modified in the last twelve months ended March 31, 2024 and 2023. 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due March 31, 2024 Commercial real estate $ — $ — $ — $ — Loans secured by real estate — — — — Total loans $ — $ — $ — $ — March 31, 2023 Commercial real estate $ — $ 55 $ — $ 55 Loans secured by real estate — 55 — 55 Total loans $ — $ 55 $ — $ 55 The following table shows the financial effect of loan modifications during the current quarter to borrowers experiencing financial difficulty for the three months ended March 31, 2024 and 2023. Weighted Average Weighted Average Interest Rate Term Extension Reduction (in months) March 31, 2024 Commercial and industrial loans — % 6.59 Consumer loans — % — — % 6.59 March 31, 2023 Commercial and industrial loans 4.75 % 5.13 Consumer loans — % 3.00 4.75 % 4.93 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 during the prior twelve months that experienced defaults for three months ended March 31, 2024 or for the three months ended March 31, 2023. Purchased Credit Deteriorated (PCD) Loans The Company has acquired loans, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. The carrying amount of those loans at acquisition date is as follows (in thousands): 2023 Blackhawk Acquisition Purchase price of purchase credit deteriorated loans at acquisition $ 115,250 Allowance for credit losses at acquisition ( 3,791 ) Non-credit discount/(premium) at acquisition ( 5,476 ) Fair value of purchased credit deteriorated loans at acquisition $ 105,983 25 Note 5 -- Goodwill and Intangible Assets The Company has goodwill from business combinations, intangible assets from branch acquisitions, identifiable intangible assets assigned to core deposit relationships and customer lists of First Mid Wealth Management Company and First Mid Insurance. The following table presents gross carrying value and accumulated amortization by major intangible asset class as of March 31, 2024 and December 31, 2023 (in thousands): March 31, 2024 December 31, 2023 Gross Carrying Value Accumulated Amortization Gross Carrying Value Accumulated Amortization Goodwill not subject to amortization $ 200,221 $ 3,760 $ 200,221 $ 3,760 Intangibles from branch acquisition 3,015 3,015 3,015 3,015 Core deposit intangibles 79,945 37,520 79,945 34,966 Other intangibles 26,552 11,198 26,552 10,620 $ 309,733 $ 55,493 $ 309,733 $ 52,361 Goodwill of $ 50.1 million was recorded for the acquisition and merger of Blackhawk Bancorp, Inc. during the third quarter of 2023. All of the goodwill was assigned to the banking division of the Company. The goodwill will not be deductible for tax purposes. The following table provides a reconciliation of the purchase price paid for the acquisition of Blackhawk and the amount of goodwill recorded (in thousands): Unallocated purchase price $ 26,955 Less purchase accounting adjustments: Fair value of securities $ ( 25,521 ) Fair value of loans, net ( 43,477 ) Fair value of premises and equipment ( 3,856 ) Fair value of time deposits 2,311 Fair value of subordinated and jr subordinated debentures 3,707 Increase in core deposit intangible 33,731 Increase in mortgage servicing rights 3,344 Other assets 6,619 ( 23,142 ) $ 50,097 During the quarter ended June 30, 2023, goodwill of $ 6 million was recorded for the acquisition of the stock of Purdum, Gray, Ingledue, Beck, Inc., in connection with its insurance business. First Mid Insurance was assigned all this goodwill. The following provides a reconciliation of the purchase price paid for Purdum, Gray, Ingledue, Beck, Inc. and the amount of goodwill recorded (in thousands): Unallocated purchase price $ 10,145 Less purchase accounting adjustments: Insurance Company intangible $ 5,770 Other liabilities ( 1,576 ) 4,194 $ 5,951 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, 2024, March 31, 2023 and December 31, 2023 (in thousands): March 31, 2024 March 31, 2023 December 31, 2023 Beginning balance $ 6,859 $ 331 $ 331 Mortgage servicing rights acquired during period — — 7,070 Adjustment to valuation reserve ( 33 ) — ( 8 ) Mortgage servicing rights amortized ( 364 ) ( 17 ) ( 524 ) Interest only strip ( 3 ) ( 2 ) ( 10 ) Ending balance $ 6,459 $ 312 $ 6,859 26 Total amortization expense for three months ended March 31, 2024 and 2023 was as follows (in thousands): Three months ended March 31, 2024 2023 Core deposit intangibles $ 2,554 $ 1,049 Customer list intangibles 579 456 Mortgage servicing rights 364 17 $ 3,497 $ 1,522 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 01/01/24 - 03/31/24 $ 3,497 Estimated amortization expense: For period 04/01/24 - 12/31/24 9,982 For year ended 12/31/25 12,158 For year ended 12/31/26 10,570 For year ended 12/31/27 9,351 For year ended 12/31/28 8,183 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 May 31, 2023 and determined that, as of that date, goodwill was not impaired. Management also concluded that the remaining amounts and amortization periods were appropriate for all intangible assets. Note 6 -- Repurchase Agreements and Other Borrowings Securities sold under agreements to repurchase were $ 210.7 million at March 31, 2024, an decrease of $ 3.0 million from $ 213.7 million at December 31, 2023. All the transactions have overnight maturities with a weighted average rate of 3.13 % . 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, 2024 December 31, 2023 US Treasury securities and obligations of U.S. government corporations and agencies $ 57,872 $ 46,544 Mortgage-backed securities: GSE: residential 152,847 167,177 Total $ 210,719 $ 213,721 27 Gross FHLB borrowings, were $ 238.6 million and $ 263.6 million at March 31, 2024 and December 31, 2023, respectively. At March 31, 2024 the advances were as follows: Advance Term (in years) Interest Rate Maturity Date 25,000,000 1.5 4.69 % May 10, 2024 25,000,000 2.0 4.59 % November 8, 2024 10,000,000 5.0 1.45 % December 31, 2024 5,000,000 5.0 0.91 % March 10, 2025 3,605,826 10.0 2.64 % December 23, 2025 25,000,000 3.0 4.40 % June 15, 2026 50,000,000 4.0 3.49 % December 8, 2027 25,000,000 5.0 3.67 % June 15, 2028 25,000,000 5.0 3.82 % June 29, 2028 25,000,000 5.0 3.95 % June 29, 2028 5,000,000 10.0 1.15 % October 3, 2029 5,000,000 10.0 1.12 % October 3, 2029 10,000,000 10.0 1.39 % December 31, 2029 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. Loans Held for Sale. The fair value of loans held for sale is based on independent asset pricing services which use observable market data as of the measurement date and are therefore classified in Level 2 of the valuation hierarchy. 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. 28 The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall as of March 31, 2024 and December 31, 2023 (in thousands): Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Fair Value (Level 1) (Level 2) (Level 3) March 31, 2024 Available-for-sale securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 207,320 $ — $ 207,320 $ — Obligations of states and political subdivisions 282,570 — 282,570 — Mortgage-backed securities 581,004 — 581,004 — Other securities 68,533 — 62,568 5,965 Total available-for-sale securities 1,139,427 — 1,133,462 5,965 Equity securities 4,298 4,298 — — Loans held for sale 4,817 — 4,817 — Derivative assets: interest rate swaps 3,539 — 3,539 — Total assets $ 1,152,081 $ 4,298 $ 1,141,818 $ 5,965 Derivative liabilities: interest rate swaps $ 2,435 $ — $ 2,435 $ — December 31, 2023 Available-for-sale securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 211,656 $ — $ 211,656 $ — Obligations of states and political subdivisions 288,616 — 288,616 — Mortgage-backed securities 602,300 — 602,300 — Other securities 69,000 — 62,837 6,163 Total available-for-sale securities 1,171,572 — 1,165,409 6,163 Equity securities 4,074 4,074 — — Loans held for sale 4,980 — 4,980 — Derivative assets: interest rate swaps 3,166 — 3,166 — Total assets $ 1,183,792 $ 4,074 $ 1,173,555 $ 6,163 Derivative liabilities: interest swaps $ 2,217 $ — $ 2,217 $ — 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, 2024 and 2023 is summarized as follows (in thousands): Three months ended March 31, 2024 Other Total Beginning balance $ 6,163 $ 6,163 Transfers into Level 3 1 1 Maturities ( 199 ) ( 199 ) Ending balance $ 5,965 $ 5,965 Three months ended March 31, 2023 Other Total Beginning balance $ 10,000 $ 10,000 Transfers into Level 3 10 10 Ending balance $ 10,010 $ 10,010 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. 29 Collateral Dependent Loans. Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment and estimating fair value include using the fair value of the collateral for collateral dependent loans. If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value, which includes selling costs. Individually evaluated loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method. Management establishes a specific allowance for individually evaluated loans that have an estimated fair value that is below the carrying value. The total carrying amount of loans for which a change in specific allowance has occurred as of March 31, 2024 was $ 1.3 million and a fair value of $ 1.0 million resulting in specific loss exposures of $ 324,000 . When there is little prospect of collecting principal or interest, loans, or portions of loans, may be charged-off to the allowance for credit losses. Losses are recognized in the period an obligation becomes uncollectible. The recognition of a loss does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan even though partial recovery may be affected in the future. Foreclosed Assets Held For Sale. Other real estate owned acquired through loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. The adjustment at the time of foreclosure is recorded through the allowance for credit losses. Due to the subjective nature of establishing the fair value when the asset is acquired, the actual fair value of the other real estate owned, or foreclosed asset could differ from the original estimate. If it is determined that fair value declines subsequent to foreclosure, a valuation allowance is recorded through noninterest expense. Operating costs associated with the assets after acquisition are also recorded as noninterest expense. Gains and losses on the disposition of other real estate owned and foreclosed assets are netted and posted to other noninterest expense. The total carrying amount of other real estate owned as of March 31, 2024 was $ 1.3 million . Other real estate owned included in the total carrying amount and measured at fair value on a nonrecurring basis during the period amounted to $ 0 . 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, 2024 and December 31, 2023 (in thousands): Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Fair Value (Level 1) (Level 2) (Level 3) March 31, 2024 Collateral dependent loans $ 985 $ — $ — $ 985 Foreclosed assets held for sale — — — — December 31, 2023 Collateral dependent loans $ 1,028 $ — $ — $ 1,028 Foreclosed assets held for sale 24 — — 24 Sensitivity of Significant Unobservable Inputs The following table presents quantitative information about unobservable inputs used in Level 3 fair value measurements other than goodwill at March 31, 2024 and December 31, 2023. March 31, 2024 Fair Value Valuation Technique Unobservable Inputs Range Weighted Average Collateral dependent loans $ 985 Third party valuations Discount to reflect realizable value less estimated selling costs 0 % - 40 % 20 % Foreclosed assets held for sale — Third party valuations Discount to reflect realizable value less estimated selling costs 0 % - 40 % 35 % 30 December 31, 2023 Fair Value Valuation Technique Unobservable Inputs Range Weighted Average Collateral dependent loans $ 1,028 Third party valuations Discount to reflect realizable value 0 % - 40 % 20 % Foreclosed assets held for sale 24 Third party valuations Discount to reflect realizable value less estimated selling costs 0 % - 40 % 35 % The following tables present estimated fair values of the Company’s financial instruments at March 31, 2024 and December 31, 2023 in accordance with ASC 825 (in thousands): Carrying Amount Fair Value Level 1 Level 2 Level 3 March 31, 2024 Financial assets Cash and due from banks $ 355,686 $ 355,686 $ 355,686 $ — $ — Federal funds sold 15 15 15 — — Certificates of deposit investments 3,745 3,745 — 3,745 — Available-for-sale securities 1,139,427 1,139,427 — 1,133,462 5,965 Held-to-maturity securities 2,282 2,282 2,282 — — Equity securities 4,298 4,298 4,298 — — Loans held for sale 4,817 4,817 — 4,817 — Loans net of allowance for credit losses 5,426,542 5,061,373 — — 5,061,373 Interest receivable 37,667 37,667 — 37,667 — Federal Reserve Bank stock 19,855 19,855 — 19,855 — Federal Home Loan Bank stock 8,740 8,740 — 8,740 — Financial liabilities Deposits $ 6,242,936 $ 6,165,836 $ — $ 5,235,110 $ 930,726 Securities sold under agreements to repurchase 210,719 210,719 — 210,719 — Interest payable 6,318 6,318 — 6,318 — Federal Home Loan Bank borrowings 238,761 234,678 — 234,678 — Subordinated debt, net 106,862 102,398 — 102,398 — Junior subordinated debentures, net 24,113 21,408 — 21,408 — December 31, 2023 Financial assets Cash and due from banks $ 134,082 $ 134,082 $ 134,082 $ — $ — Federal funds sold 8,982 8,982 8,982 — — Certificates of deposit investments 1,470 1,470 — 1,470 — Available-for-sale securities 1,171,572 1,171,572 — 1,165,409 6,163 Held-to-maturity securities 2,286 2,286 2,286 — — Equity securities 4,074 4,074 4,074 — — Loans held for sale 4,980 4,980 — 4,980 — Loans net of allowance for credit losses 5,506,910 5,235,525 — — 5,235,525 Interest receivable 35,082 35,082 — 35,082 — Federal Reserve Bank stock 19,855 19,855 — 19,855 — Federal Home Loan Bank stock 9,758 9,758 — 9,758 — Financial liabilities Deposits $ 6,123,659 $ 6,042,277 $ — $ 5,076,066 $ 966,211 Securities sold under agreements to repurchase 213,721 213,714 — 213,714 — Interest payable 5,437 5,437 — 5,437 — Federal Home Loan Bank borrowings 263,787 261,206 — 261,206 — Subordinated debentures 106,755 102,018 — 102,018 — Junior subordinated debentures 24,058 21,524 — 21,524 — Note 8 – Business Combinations Blackhawk Bancorp, Inc. On August 15, 2023, the Company completed its acquisition of Blackhawk Bancorp, Inc. (“Blackhawk”) pursuant to an Agreement 31 and Plan of Merger Agreement, dated March 20, 2023 (the “Agreement”). Pursuant to the Agreement, Blackhawk was merged with and into the Company. Blackhawk shareholders received 1.15 shares of the Company's common stock for each share of Blackhawk common stock. The Company accounted for the Blackhawk acquisition as a business combination using the acquisition method of accounting in accordance with ASC 805, Business Combinations (“ASC 805”). ASC 805 requires assets purchased and liabilities assumed to be recorded at their respective fair values at the date of acquisition. The Company determined the fair value of loans, core deposit intangibles, mortgage servicing rights, time deposits, real property, and subordinated debt with the assistance of third-party valuations and appraisals. A preliminary summary of the fair value of assets received and liabilities assumed are as follows: (In thousands) Assets Cash and due from banks $ 55,600 Loans held for sale 3,222 Loans, net 722,866 Investments-available for sale 377,969 Short-term investments 869 FHLB stock 1,737 Premises and equipment 12,366 Accrued interest receivable 4,029 Prepaid expenses 1,182 Other assets 20,742 Core deposit intangible 34,590 Income tax receivable 2,077 Deferred tax asset 22,152 Mortgage servicing rights 7,031 Total assets acquired $ 1,266,432 Liabilities Deposits $ 1,194,972 Subordinated and Junior Subordinated debt 16,448 Accrued interest payable 1,091 Accrued and other liabilities 10,508 Total liabilities assumed 1,223,019 Net assets acquired $ 43,413 Total consideration $ 93,510 Goodwill $ 50,097 The following table presents a summary of consideration transferred: (In thousands, except shares) Common stock issued ( 3,290,222 shares) $ 93,508 Cash consideration 2 Purchase price $ 93,510 The Company recorded $ 50.1 million of goodwill in connection with the acquisition of Blackhawk, none of which is deductible for tax purposes. The amount of goodwill recorded reflects the synergies and operational efficiencies that are expected to result from the acquisition. The descriptions below describe the methods used to determine the fair value of significant assets acquired and liabilities assumed, as presented above: Loans, net . The fair value of the loan portfolio was calculated on an individual loan basis using a discounted cash flow analysis, with results presented and assumptions applied on a summary basis. This analysis took into consideration the contractual terms of the loans and assumptions related to the cost of debt, cost of equity, servicing cost and other liquidity/risk premium considerations to estimate the projected cash flows. The inputs and assumptions used in the fair value estimate of the loan portfolio include credit mark, discount rate, prepayment speed, and foreclosure lag. Cash flows were adjusted by estimating future credit losses and the rate 32 of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. Core deposit intangible. The Company identified customer relationships, in the form of core deposit intangibles, as an identified intangible asset. Core deposit intangibles derive value from the expected future benefits or earnings capacity attributable to the acquired core deposits. The fair value of the core deposit intangible was estimated by identifying the expected future benefits of the core deposits and discounting those benefits back to present value. The core deposit intangible will be amortized over its estimated useful life of approximately 10 years using the sum of the months digits accelerated method. Mortgage servicing rights. The Company identified residential mortgage servicing rights intangible asset and determined the fair value using a discounted cash flow analysis. The key inputs and assumptions used in the fair value estimate include prepayment assumptions, servicing costs, delinquencies, foreclosure costs, ancillary income, income earned on float & escrow, interest on escrow, internal rate of return and inflation. Deposits. The fair value of demand deposit and interest checking deposit accounts was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. The fair value of time deposits was estimated by discounting the contractual future cash flows using market rates offered for time deposits of similar remaining maturities. Subordinated and Junior Subordinated debt. The Subordinated and Junior Subordinated debt was fair valued using an income approach. Cash flows were calculated using an annualized contractual rate adjusted for forward interest costs and discounted using a variable discount rate. Accounting for acquired loans. Loans acquired are recorded at fair value with no carryover of the related allowance for credit losses. Purchased-credit deteriorated loans (“PCD”) are loans that have experienced more than insignificant credit deterioration since origination and are recorded at the purchase price. The allowance for credit losses is determined at the loan level. The sum of the loan’s purchase price and the allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Non-PCD loans have not experienced a more than insignificant deterioration in credit quality since origination. The difference between the fair value and outstanding balance of the non-PCD loans is recognized as an adjustment to interest income over the lives of the loan. In accordance with ASC 326, Financial Instruments – Credit Losses , immediately following the acquisition the Company established a $ 3.8 million allowance for credit losses on the $ 618.33 million of acquired non-PCD loans through provision for credit losses in the consolidated statement of operations. The following table provides a summary of PCD loans purchased as part of the Blackhawk acquisition as of the acquisition date: (In thousands) Unpaid principal balance $ 115,250 PCD allowance for credit losses at acquisition ( 3,791 ) Non-credit discount on acquired loans ( 5,476 ) Fair value of PCD loans $ 105,983 33 The following unaudited pro forma condensed combined financial information presents the results of operations of the Company, including the effects of the purchase accounting adjustments and acquisition expenses, had the Blackhawk Merger taken place at the beginning of the period (dollars in thousands, except per share data): Three months ended March 31, 2023 Net interest income $ 57,640 Provision for credit losses ( 402 ) Non-interest income 25,664 Non-interest expense 55,808 Income before taxes 27,898 Income tax expense 6,395 Net income $ 21,503 Earnings per share Basic $ 0.90 Diluted $ 0.90 Basic weighted average shares o/s 23,782,476 Diluted weighted average shares o/s 23,854,194 Acquisition costs are expensed as incurred as a component of non-interest expense and primarily include, but are not limited to, severance costs, professional services, data processing fees, and marketing and advertising expenses. The Company incurred acquisition costs related to the Blackhawk acquisition, pre-tax, of $ 2.2 million and $ 93,000 , respectively, during the three months ended March 31, 2024 and March 31, 2023. Note 9 -- Leases Effective January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842). As of March 31, 2024, substantially all the Company's leases are operating leases for real estate property for bank branches, ATM locations, and office space. These leases are generally for periods of 1 to 25 years with various renewal options. The Company elected the optional transition method permitted by Topic 842. Under this method, the Company recognizes and measures leases that exist at the application date and prior comparative periods are not adjusted. In addition, the Company elected the package of practical expedients: 1. An entity need not reassess whether any expired or existing contracts contain leases. 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. 34 The following table contains supplemental balance sheet information related to leases (dollars in thousands): March 31, 2024 March 31, 2023 December 31, 2023 Operating lease right-of-use assets $ 14,318 $ 15,092 $ 14,306 Operating lease liabilities 14,624 15,353 14,615 Weighted-average remaining lease term (in years) 4.8 5.6 4.9 Weighted-average discount rate 3.22 % 2.68 % 3.21 % Certain of the Company's leases contain options to renew the lease; however, not all renewal options are included in the calculation of lease liabilities as they are not reasonably certain to be exercised. The Company's leases do not contain residual value guarantees or material variable lease payments. The Company does not have any other material restrictions or covenants imposed by leases that would impact the Company's ability to pay dividends or cause the Company to incur additional financial obligations. Maturities of lease liabilities are as follows (in thousands): Year ending December 31, 2024 $ 2,444 2025 2,686 2026 2,509 2027 2,287 2028 1,693 Thereafter 4,818 Total lease payments 16,437 Less imputed interest ( 1,813 ) Total lease liability $ 14,624 The components of lease expense for the three months ended March 31, 2024 and 2023 were as follows (in thousands): Three months ended March 31, 2024 2023 Operating lease cost $ 846 $ 753 Short-term lease cost 35 30 Variable lease cost 138 223 Total lease cost 1,019 1,006 Income from subleases ( 104 ) ( 94 ) Net lease cost $ 915 $ 912 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): March 31, 2024 March 31, 2023 Operating cash flows from operating leases $ 836 $ 781 Note 10 – Derivatives The Company utilizes an interest rate swap, designated as a fair value hedge, to mitigate the risk of changing interest rates on the fair value of a fixed rate commercial real estate loan. For derivative instruments that are designed and qualify as a fair value hedge, the gain or loss on the derivative instrument, as well as the offsetting loss or gain in the hedged asset attributable to the hedged risk, is recognized in current earnings. 35 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, 2024 and December 31, 2023 (in thousands): Balance Sheet Location Weighted Average Remaining Maturity (Years) Notional Amount Estimated Value March 31, 2024 Fair value hedges: Interest rate swap agreements Other liabilities 5.1 $ 12,910 $ ( 2,435 ) December 31, 2023 Fair value hedges: Interest rate swap agreements Other liabilities 5.3 $ 12,976 $ ( 2,217 ) The effects of the fair value hedges on the Company's income statement during the three months ended March 31, 2024 and 2023 were as follows (in thousands): Three months ended March 31, Derivative Location of Gain (Loss) on Derivatives 2024 2023 Interest rate swap agreements Interest income on loans $ 155 $ ( 325 ) Three months ended March 31, Derivative Location of Gain (Loss) on Hedged Items 2024 2023 Interest rate swap agreements Interest income on loans $ ( 155 ) $ 325 As of March 31, 2024, 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 $ 11,807 $ ( 1,104 ) 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, 2024 (dollars in thousands): March 31, 2024 Balance Sheet Location Weighted Average Remaining Maturity (Years) Notional Amount Estimated Value Interest rate swap agreements Other assets 4.8 $ 30,280 $ 3,539 Interest rate swap agreements Other liabilities 4.8 30,280 ( 3,539 )