What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-01 compared with 2021-02-26 · 309 added, 461 removed, 1642 unchanged (32% of the section changed)

15 unchanged sentences

The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles .

The adoption of the new credit loss standard and its subsequent application is also communicated as a critical audit matter below.

Basis for Opinions

22 unchanged sentences

(i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses on Loans

In accordance with Accounting Standards Update (the “ASU”) 2016-13, Financial Instruments —Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, the Company adopted Accounting Standards Codification (“ASC”) 326 as of January 1, 2020 as described in Notes 1 and 4 of the consolidated financial statements using the modified retrospective method.

Also see explanatory paragraph above.

The ASU requires financial assets, including the Company's loan portfolio, measured at amortized cost, to be presented at the net amount expected to be collected.

Estimates of expected credit losses for loans are based on reasonable and supportable forecast of future economic conditions, historical loss experience and qualitative adjustments for current conditions.

In order to estimate the expected credit losses, the Company implemented new loss estimation models.

The Company disclosed the impact of adoption of this standard on January 1, 2020 with a $15.7 million increase to the allowance for credit losses, a $173 thousand increase for unfunded loan commitments and a $6.7 million decrease to retained earnings for the cumulative effect adjustment recorded upon adoption.

Provision expense for the year ending December 31, 2020 was $17.6 million and the Allowance for Credit Losses at December 31, 2020 was $46.9 million.

As discussed in Notes 1 and 4, the allowance for credit losses (the “ACL”) is an accounting estimate of expected credit losses over the estimated life of financial assets carried at amortized cost and off-balance-sheet credit exposures in accordance with Accounting Standards Update (the “ASU”) 2016-13, Financial Instruments —Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

The standard requires the Company's loan portfolio, measured at amortized cost, to be presented at the net amount expected to be collected.

Estimates of expected credit losses for loans are based on historical experience, current conditions and reasonable and supportable forecasts over the estimated life of the loans.

In order to estimate the expected credit losses, the Company utilizes a loss estimation model.

The Company utilizes the static pool methodology for determining the allowance for credit losses.

2 unchanged sentences

Commercial and agricultural loans graded special mention and substandard are also adjusted based on a migration analysis technique.

Loans that no longer exhibit shared risk characteristics are evaluated on an individual basis.

The Allowance for Credit Losses was identified by us as a critical audit matter because of the extent of auditor judgment applied and significant audit effort to evaluate the significant subjective and complex judgments made by management throughout the initial adoption and subsequent application processes.

Auditing the Allowance for Credit Losses for Loans was identified by us as a critical audit matter because of the extent of auditor judgment applied and significant audit effort to evaluate the significant subjective and complex judgments made by management.

The principal considerations resulting in our determination included the following:

• Significant audit effort to evaluate the appropriateness of selection of loss estimation models, loan segmentation and historical loss period used in the calculation

• Significant auditor judgement and effort were used in evaluating the qualitative factors used in the calculation.

• Significant auditor judgment in evaluating the selection and application of the reasonable and supportable forecast of economic variables.

• Significant auditor judgment and effort were used in evaluating the qualitative factors used in the calculation.

• Significant audit effort to test the completeness and accuracy of data used in the migration analysis calculation, including accuracy of loan risk rating, and its application to the commercial and agricultural loan segments.

Report of Independent Registered Public Accounting Firm

The primary procedures performed to address this critical audit matter included:

• Testing the effectiveness of management’s internal controls over the Company’s significant model assumptions and judgments, loan segmentation, reasonable and supportable forecasts, qualitative factor adjustments, information systems and model validation

• Testing the effectiveness of controls over the Company’s preparation and review of the allowance for credit loss calculation, including data used as the basis for adjustments related to the qualitative factors, the development and reasonableness of qualitative factors and mathematical accuracy and appropriateness of the overall calculation;

• Evaluating management’s judgments in the selection and application of reasonable and supportable forecast of economic variables

• Substantively testing management’s process for developing the qualitative factors and assessing reasonableness, relevance and reliability of data used to develop factors, including evaluating their judgments and assumptions for reasonableness

• Testing the effectiveness of controls over the Company’s preparation and review of the allowance for credit loss calculation, including relevance and reliability of data used as the basis for adjustments related to the qualitative factors, management’s judgments and significant assumptions in the development and reasonableness of qualitative factors, and mathematical accuracy and appropriateness of the application of qualitative factors;

Report of Independent Registered Public Accounting Firm

• Substantively testing management’s process for developing the qualitative factors and assessing relevance and reliability of data used to develop factors, including evaluating their judgments and significant assumptions for reasonableness, and mathematical accuracy and appropriateness of the application of qualitative factors;

• Testing the effectiveness of controls over the Company’s loan risk rating;

3 unchanged sentences

Louisville, Kentucky

February 26, 2021

March 1, 2022

Consolidated Balance Sheets

Dollars in thousands, except per share data

Dollars in thousands, except share and per share data

Cash and Due from Banks $ 47,173 $ 57,972

2 unchanged sentences

Interest-bearing Time Deposits with Banks 745 1,241

Securities Available-for-Sale, at Fair Value (Amortized Cost $ 1,172,175 , No Allowance for Credit Losses)

Securities Available-for-Sale, at Fair Value (Amortized Cost $ 1,869,198 for December 31, 2021;

Amortized Cost $ 1,172,175 for December 31, 2020;

No Allowance for Credit Losses)

1,889,617 1,217,852

51 unchanged sentences

NON-INTEREST INCOME

Trust and Investment Product Fees 8,005 7,278 6,680

Wealth Management and Investment Services Income 10,321 8,005 7,278

Service Charges on Deposit Accounts 7,723 7,334 8,718

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Diluted Earnings per Share $ 3.17 $ 2.34 $ 2.29

Dividends per Share $ 0.76 $ 0.68 $ 0.60

See accompanying notes to the consolidated financial statements.

Consolidated Statements of Comprehensive Income

Dollars in thousands, except per share data

Dollars in thousands

Years Ended December 31,

9 unchanged sentences

Net (Loss) Arising During the Period — — ( 310 )

Reclassification Adjustment for Amortization of Prior Service Cost and Net Loss Included in Net Periodic Pension Cost — 37 32

Reclassification Adjustment for Amortization of Prior Service Cost and Net — — 37

Tax Effect — — 44

4 unchanged sentences

Consolidated Statements of Changes in Shareholders’ Equity

Dollars in thousands, except per share data

Dollars in thousands, except share and per share data

Shares Amount Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity

5 unchanged sentences

Issuance of Common Stock for:

Acquisition of First Security, Inc.

1,987,698 1,988 62,749 64,737

Acquisition of Citizens First Corporation 1,663,954 1,664 48,360 50,024

Restricted Share Grants 39,956 40 1,247 1,287

Balances, December 31, 2019 26,671,368 26,671 278,954 253,090 15,105 573,820

Cumulative Effect of Change in Accounting Principles ( 6,717 ) ( 6,717 )

Balances, January 1, 2020 26,671,368 26,671 278,954 246,373 15,105 567,103

Net Income 62,210 62,210

3 unchanged sentences

Issuance of Common Stock for:

Acquisition of Citizens First Corporation 1,663,954 1,664 48,360 50,024

Restricted Share Grants 52,701 53 998 1,051

Stock Repurchase ( 221,912 ) ( 222 ) ( 5,567 ) ( 5,789 )

Balances, December 31, 2020 26,502,157 26,502 274,385 288,447 35,375 624,709

Cumulative Effect of Change in Accounting Principles ( 6,717 ) ( 6,717 )

Balances, January 1, 2020 26,671,368 26,671 278,954 246,373 15,105 567,103

Net Income 84,137 84,137

4 unchanged sentences

Restricted Share Grants 51,351 52 1,672 1,724

Stock Repurchase ( 221,912 ) ( 222 ) ( 5,567 ) ( 5,789 )

Balances, December 31, 2021 26,553,508 $ 26,554 $ 276,057 $ 350,364 $ 15,484 $ 668,459

31 unchanged sentences

Purchase of Loans — — ( 2,051 )

Proceeds from Sales of Loans 3,128 — 6,000

Proceeds from Sales of Loans Held for Investment — 3,128 —

Loans Made to Customers, net of Payments Received 59,557 ( 10,114 ) 3,925

1 unchanged sentence

Property and Equipment Expenditures ( 4,686 ) ( 7,071 ) ( 9,374 )

Proceeds from Sales of Property and Equipment — — 40

Proceeds from Sale of Land and Building 1,963 3,928 1,761

Proceeds from Life Insurance 549 1,082 1,216

Acquisition of First Security, Inc.

— — ( 17,566 )

Cash from Acquisition of Bank Branches — — 42,700

Sale of Bank Branches 1,694 — —

Acquisition of Citizens First Corporation — — 5,545

23 unchanged sentences

Impact of COVID-19

On January 30, 2020, the World Health Organization (“WHO”) announced that the outbreak of the novel coronavirus disease 2019 (COVID-19) constituted a public health emergency of international concern.

On March 11, 2020, WHO declared COVID-19 to be a global pandemic and, on March 13, 2020, the President of the United States declared the COVID-19 outbreak a national emergency.

The health concerns relating to the COVID-19 outbreak and related governmental actions taken to reduce the spread of the virus have significantly impacted the global economy (including the states and local economies in which we operate), disrupted supply chains, lowered equity market valuations, and created significant volatility and disruption in financial markets.

The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place or total lock-down orders and business limitations and shutdowns.

Such measures have significantly contributed to rising unemployment and negatively impacted consumer and business spending.

While quarantine and lock-down orders have been lifted and vaccination efforts are underway, COVID-19 has not yet been contained and commercial activity has not yet returned to the levels existing prior to the pandemic outbreak.

As a result, the demand for the Company’s products and services has been, and will continue to be, significantly impacted.

Furthermore, the outbreak could negatively impact our employees and customers’ ability to engage in banking and other financial transactions.

The Company also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to the effects and restrictions of a COVID-19 outbreak in our market areas.

The fair value of certain assets could be impacted by the effects of COVID-19.

The carrying value of goodwill, right-of-use lease assets, and other real estate owned could decrease resulting in future impairment losses.

Management will continue to evaluate current economic conditions to determine if a triggering event would impact the current valuations for these assets.

As a result, it is not currently possible to ascertain the continued impact of COVID-19 on the Company’s business.

However, if the pandemic continues as a prolonged worldwide health crisis, the disease could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows.

The novel coronavirus disease 2019 (COVID-19) pandemic continued to impact our operations during 2021.

While uncertainty remains as to the future effects of the pandemic, an improving business climate, supported by unprecedented fiscal stimulus, an accommodative Federal Reserve, and the demonstrated ability of states and local governments to respond to COVID-19 and its variants, has helped to mitigate the negative impacts of the pandemic on our financial condition and results of operations, despite the challenges presented by very low interest rates, muted loan growth, excess liquidity and rising inflation.

Description of Business and Basis of Presentation

22 unchanged sentences

Net unrealized gains or losses are recorded through earnings.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

Mortgage loans held for sale are generally sold on a servicing released basis.

9 unchanged sentences

An allowance for credit losses on loans is determined using the same methodology as other loans held for investment.

The initial allowance for credit losses on loans determined on a collective basis is allocated to individual loans.

The initial allowance for credit losses on loans determined on a collective basis

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

is allocated to individual loans.

The sum of the loan’s purchase price and allowance for credit losses on loans becomes its initial amortized cost basis.

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If the cash flows from the business operations is reduced, the business ’ s ability to repay the lease is diminished as well.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

Home Equity Loans - Home equity loans are generally secured by 1-4 family residences that are owner-occupied.

1 unchanged sentence

Consumer Loans - Consumer loan repayment is typically dependent on the borrower remaining employed through the life of the loan as well as the borrower maintaining the underlying collateral adequately.

Credit Cards - Credit card loan are unsecured and repayment is primarily dependent on the personal income of the borrower.

Credit Cards - Credit card loans are unsecured and repayment is primarily dependent on the personal income of the borrower.

Residential Mortgage Loans - Residential mortgage loans are typically secured by 1-4 family residences that are owner-occupied.

1 unchanged sentence

Repayment may also be impacted by changes in residential property values.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

Loans that do not share risk characteristics are evaluated on an individual basis.

3 unchanged sentences

A loan for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, is considered to be a TDR.

The allowances for credit losses on loans on a TDR is measured using the same method as all other loans held for investment, except that the original interest rate is used to discount the expected cash flows, not the rate specified within the restructuring.

The allowances for credit losses on loans on a TDR is measured using the same method as all other loans held for investment.

Loan Modifications and Troubled Debt Restructurings due to COVID-19

12 unchanged sentences

Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

8 unchanged sentences

Both cash and stock dividends are reported as income.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

Premises, Furniture and Equipment

26 unchanged sentences

Such financial instruments are recorded when they are funded.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

Restrictions on Cash

At December 31, 2020, the Company was no t required to have balance on deposits with the Federal Reserve, or as cash on hand.

At December 31, 2019, the Company was required to have $ 24,560 on deposit with the Federal Reserve, or as cash on hand.

At December 31, 2021 and 2020, the Company was no t required to have balance on deposits with the Federal Reserve, or as cash on hand.

Long-term Assets

5 unchanged sentences

Compensation cost is recognized over the required service period, generally defined as the vesting period.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

Comprehensive Income

7 unchanged sentences

For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

The Company recognizes interest and/or penalties related to income tax matters in other operating expense.

Retirement Plans

16 unchanged sentences

Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology.

The measurement of

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities.

It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments).

1 unchanged sentence

The standard provides significant flexibility and requires a high degree of judgement with regards to pooling financial assets with similar risk characteristics and adjusting the relevant historical loss information in order to develop an estimate of expected lifetime losses.

The Company adopted ASC 326 on January 1, 2020 using the modified restrospective approach.

The Company adopted ASC 326 on January 1, 2020 using the modified retrospective approach.

Results for reporting periods after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

The Company recorded a net reduction of retained earnings of $ 6,717 upon adoption.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (PCD) that were previously classified as purchased credit impaired (PCI) and accounted for under ASC 310-30.

14 unchanged sentences

Total Loans $ 3,081,973 $ — $ 3,081,973

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

The following table illustrates the impact of ASC 326:

13 unchanged sentences

On March 27, 2020, in an action related to the CARES Act, the federal banking regulators announced an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL.

The interim final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option).

The Company is adopting the capital transition relief over the permissible five-year period.

The interim final rule, which was finalized effective September 30, 2020, maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option).

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

Company has taken advantage of the capital transition relief over the permissible five-year period and will begin the three-year phase-in of the regulatory impact effective January 1, 2022.

In January 2017, the FASB issued ASU No.

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The amendments in this update became effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019 and did not have a material impact on the Company ’ s financial statements.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 1 – Summary of Significant Accounting Policies (continued)

Accounting Guidance Issued But Not Yet Adopted

In March 2020, the FASB issued ASU No.

5 unchanged sentences

The guidance is effective for all entities as of March 12, 2020 through December 31, 2022.

The Company is evaluating the impact of adopting the new guidance on the consolidated financial statements on an ongoing basis with no material expected impact at this time.

The Company is continuing to evaluate the impact of adopting this standard over the effective period, and does not expect it to have a material impact.

NOTE 2 – Securities

10 unchanged sentences

Total $ 1,172,175 $ 46,003 $ ( 326 ) $ 1,217,852

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 2 – Securities (continued)

All mortgage-backed securities in the above table (identified above and throughout this Note 2 as “MBS/CMO”) are residential and multi-family mortgage-backed securities and guaranteed by government sponsored entities.

11 unchanged sentences

Total $ 1,869,198 $ 1,889,617

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 2 – Securities (continued)

2021 2020 2019

26 unchanged sentences

Available-for-sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly.

For available-for-sale debt securities in an unrealized loss position, the Company assesses whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis.

For available-for-sale debt securities in an unrealized loss position, the Company assesses whether we intend to sell,

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 2 – Securities (continued)

or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income.

4 unchanged sentences

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes.

No allowance for credit losses for available-for-sale debt securities was needed at December 31, 2020.

No allowance for credit losses for available-for-sale debt securities was needed at December 31, 2021 or 2020.

Accrued interest receivable on available-for-sale debt securities totaled $ 8,990 at December 31, 2021 and is excluded from the estimate of credit losses.

The unrealized losses attributable to our state and political subdivisions, mortgage-backed securities and US government sponsored entities and agencies are the result of fluctuations in interest rates.

The Company’s equity securities are listed as Other Investments on the Consolidated Balance Sheets and consist of one non-controlling investment in a single banking organization at December 31, 2021 and 2020.

2 unchanged sentences

There was no additional impairment recognized through earnings during 2021 or 2020.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 3 - Derivatives

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Included in Other Income $ 1,131 $ 268 $ 429

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 4 – Loans

12 unchanged sentences

Loans, net $ 2,967,247 $ 3,041,213

As previously disclosed, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law in March 2020, providing an approximately $2 trillion stimulus package that included direct payments to individual taxpayers, economic stimulus to significantly impacted industry sectors, emergency funding for hospitals and providers, small business loans, increased unemployment benefits, and a variety of tax incentives.

For small businesses, eligible nonprofits and certain others, the CARES Act established a Paycheck Protection Program (“PPP”), a lending program administered by the Small Business Administration (“SBA”) that is intended to incentivize participants to retain their employees by providing them with loans that are fully guaranteed by the U.S.

government and subject to forgiveness if program guidelines are met.

The PPP was later extended and modified by the Paycheck Protection Program and Health Care Enhancement Act in April 2020 and the Paycheck Protection Program Flexibility Act in June 2020, with PPP funding under this initial round expiring on August 8, 2020.

In December 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act was signed into law as part of the Consolidated Appropriations Act, 2021 (the “CAA”).

In addition to direct stimulus payments and other aid, this Act provided for a second round of PPP loans through March 31, 2021.

Under the American Rescue Plan Act of 2021 and the PPP Extension Act of 2021, which were both enacted during March 2021, additional funds were provided for the program and the deadline for applying for PPP loans was extended through May 31, 2021 (with the SBA having been given until June 30, 2021 to process loan applications).

The Company actively participated in both rounds of the PPP, lending funds primarily to its existing loan and/or deposit customers.

The PPP loans carry an interest rate of 1.00 % and included a processing fee that varied depending on the balance of the loan at origination (which fee is recognized over the life of the loan).

The vast majority of the Company’s PPP loans made during 2020 had two-year maturities, while PPP loans made during 2021 have five-year maturities.

Under the first round of the PPP (i.e., the 2020 round), the Company originated loans totaling approximately $ 351,260 in principal amount, with approximately $ 12,024 of related net processing fees on 3,070 PPP loan relationships.

As of December 31, 2021, $ 349,152 of those first round PPP loans had been forgiven by the SBA and repaid to the Company pursuant to the terms of the program or repaid by customers, with $ 12,012 in net processing fees having been recognized by the Company.

Under the second round of the PPP (i.e., the 2021 round), the Company originated loans totaling approximately $ 157,042 in principal amount, with approximately $ 9,022 of related net processing fees, on 2,601 PPP loan relationships.

As of December 31, 2021, $ 138,828 of second round PPP loans had been forgiven by the SBA and repaid to the Company, with $ 8,160 in net processing fees having been recognized by the Company.

As a result of the forgiveness of the first and second round PPP loans, $ 20,322 of total PPP loans remain outstanding as of December 31, 2021, with approximately $ 872 of net fees remaining deferred on that date.

Notes to the Consolidated Financial Statements

1 unchanged sentence

NOTE 4 – Loans (continued)

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law, providing an approximately $2 trillion stimulus package that includes direct payments to individual taxpayers, economic stimulus to significantly impacted industry sectors, emergency funding for hospitals and providers, small business loans, increased unemployment benefits, and a variety of tax incentives.

For small businesses, eligible nonprofits and certain others, the CARES Act established a Paycheck Protection Program (“PPP”), which is administered by the Small Business Administration (“SBA”).

On April 24, 2020, the Paycheck Protection Program and Health Care Enhancement Act was enacted.

Among other things, this legislation amends the initial CARES Act program by raising the appropriation level for PPP loans from $349 billion to $670 billion.

The PPP was further modified on June 5, 2020 with the adoption of the Paycheck Protection Program Flexibility Act (the “Flexibility Act”), which extended the maturity date for PPP loans from two years to five years for loans disbursed on or after the date of enactment of the Flexibility Act.

For PPP loans disbursed prior to such enactment, the Flexibility Act permits the borrower and lender to mutually agree to extend the term of the loan to five years.

The vast majority of the Company's PPP loans have two-year maturities.

PPP loans earn interest at a fixed rate of 1% and are fully guaranteed by the U.S.

During 2020, the Bank originated loans totaling approximately $ 351.3 million ($ 339.3 million net of deferred fees) in principal amount, on 3,070 PPP loan relationships under this program.

As a result of the forgiveness of PPP loans which began in the fourth quarter of 2020 for the Company, remaining PPP loans outstanding totaled $ 186.0 million ($ 182.0 million net of deferred fees) as of December 31, 2020 and are included above in the Commercial and Industrial Loan category.

Allowance for Credit Losses for Loans

The following table presents the activity in the allowance for credit losses by portfolio segment for the year ended December 31, 2020:

The following tables present the activity in the allowance for credit losses by portfolio segment for the years ended December 31, 2021 and 2020:

December 31, 2021 Commercial

5 unchanged sentences

Allowance for Credit Losses:

Beginning Balance $ 6,445 $ 29,878 $ 6,756 $ 200 $ 490 $ 996 $ 150 $ 1,944 $ — $ 46,859

Provision (Benefit) for Credit Losses 5,825 ( 10,663 ) ( 2,251 ) — 385 44 387 ( 227 ) — ( 6,500 )

Loans Charged-off ( 2,777 ) ( 10 ) — — ( 675 ) ( 15 ) ( 313 ) ( 45 ) — ( 3,835 )

Recoveries Collected 61 40 — — 307 36 16 33 — 493

Total Ending Allowance Balance $ 9,554 $ 19,245 $ 4,505 $ 200 $ 507 $ 1,061 $ 240 $ 1,705 $ — $ 37,017

December 31, 2020 Commercial

Loans Commercial

Loans Agricultural

Loans Leases Consumer

Loans Home Equity Loans Credit Cards Residential

Loans Unallocated Total

Allowance for Credit Losses:

Beginning Balance Prior to Adoption of ASC 326 $ 4,799 $ 4,692 $ 5,315 $ — $ 434 $ 200 $ — $ 333 $ 505 $ 16,278

1 unchanged sentence

Impact of Adopting ASC 326 - PCD Loans 2,191 4,385 128 — — 35 — 147 — 6,886

Provision for credit loss expense ( 694 ) 17,645 ( 125 ) 95 527 66 131 ( 95 ) — 17,550

Provision (Benefit) for Credit Losses ( 694 ) 17,645 ( 125 ) 95 527 66 131 ( 95 ) — 17,550

Initial Allowance on Loans Purchased with Credit Deterioration — — — — — — — — — —

10 unchanged sentences

Management attempts to quantify qualitative reserves whenever possible.

For the year ended December 31, 2020, the allowance for credit losses increased primarily due to macroeconomic factors surrounding the COVID-19 pandemic.

While there continues to be great uncertainty related to COVID-19 on our borrowers and communities, we have recognized significant declines in employment and gross domestic product which are key indicators utilized in our forecasting for our allowance calculations.

Based on the potential increased losses related to the economic impact

The Company estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

Historical loss experience provides the basis for the estimation of expected credit losses.

Adjustments to historical loss information are made for changes in underwriting standards, portfolio mix, delinquency level, changes in environmental conditions, unemployment rates, risk classifications and collateral values.

The allowance for credit losses is measured on a collective (pooled) basis when similar risk characteristics exist.

Based on the potential increased losses related to the economic impact of the COVID-19 pandemic, the Bank considered

Notes to the Consolidated Financial Statements

1 unchanged sentence

NOTE 4 – Loans (continued)

of the COVID-19 pandemic, the bank has considered this loss experience may align with loss experience from the recessionary period from 2008-2011 and qualitative adjustments have been made accordingly.

the potential for losses to align with loss experience from the recessionary period from 2008-2011 and qualitative adjustments were made accordingly.

Loans that do not share risk characteristics are evaluated on an individual basis.

Loans evaluated individually are not included in the collective evaluation.

When the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date adjusted for selling costs.

For the year ended December 31, 2021, the allowance for credit losses decreased primarily due to a decline in individually analyzed loans as well as a decline in the reserve attributable to pandemic-related stressed sectors.

While there continues to be great uncertainty related to COVID-19 on our borrowers and communities, we have recognized improvements in employment and gross domestic product which are key indicators utilized in our forecasting for our allowance calculations.

The impact of fiscal stimulus, including direct payments to individuals, ongoing increased unemployment benefits, as well as the various government-sponsored loan programs, was also considered in our qualitative adjustments.

Since PPP loans are guaranteed by the Small Business Administration (SBA), they have minimal impact on the allowance for credit losses.

6 unchanged sentences

Exceptions to the non-accrual and charge-off policies are made when the loan is well secured and in the process of collection.

The following table presents the amortized cost basis of loans on non-accrual status and loans past due over 89 days still accruing as of December 31, 2020:

Non-Accrual With No Allowance for Credit Loss (1)

Non-Accrual Loans Past Due Over 89 Days Still Accruing

The following tables present the amortized cost basis of loans on non-accrual status and loans past due over 89 days still accruing as of December 31, 2021 and 2020:

December 31, 2021 Non-Accrual With No Allowance for Credit Loss ⁽¹⁾ Non-Accrual Loans Past Due Over 89 Days Still Accruing

Commercial and Industrial Loans $ 1,989 $ 10,530 $ —

7 unchanged sentences

(1) Includes non-accrual loans with no allowance for credit loss and are also included in Non-Accrual loans totaling $ 14,602 .

Interest income on non-accrual loans recognized during the year ended December 31, 2020 total $ 28 .

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2020:

Real Estate Equipment Accounts Receivable Other Total

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 4 – Loans (continued)

December 31, 2020 Non-Accrual With No Allowance for Credit Loss ⁽¹⁾ Non-Accrual Loans Past Due Over 89 Days Still Accruing

Commercial and Industrial Loans $ 4,571 $ 8,133 $ —

1 unchanged sentence

Agricultural Loans 1,291 1,915 —

Home Equity Loans 271 271 —

Consumer Loans 77 84 —

Credit Cards 86 86 —

Residential Mortgage Loans 671 830 —

Total $ 10,119 $ 21,507 $ —

(1) Includes non-accrual loans with no allowance for credit loss and are also included in Non-Accrual loans totaling $ 21,507 .

Interest income on non-accrual loans recognized during the years ended December 31, 2021 and 2020 totaled $ 80 and $ 28 .

The following tables present the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2021 and 2020:

December 31, 2021 Real Estate Equipment Accounts Receivable Other Total

Commercial and Industrial Loans $ 1,716 $ 2,444 $ 549 $ 5,822 $ 10,531

Commercial Real Estate Loans 4,610 — — — 4,610

Agricultural Loans 1,522 — — — 1,522

Leases — — — — —

4 unchanged sentences

Total $ 8,947 $ 2,444 $ 549 $ 5,824 $ 17,764

December 31, 2020 Real Estate Equipment Accounts Receivable Other Total

Commercial and Industrial Loans $ 4,943 $ 3,014 $ 669 $ 154 $ 8,780

Commercial Real Estate Loans 11,877 — — 1,530 13,407

Agricultural Loans 3,064 — — — 3,064

Leases — — — — —

Home Equity Loans 416 — — — 416

Consumer Loans 4 4 — 3 11

Credit Cards — — — — —

Residential Mortgage Loans 817 — — — 817

Total $ 21,121 $ 3,018 $ 669 $ 1,687 $ 26,495

Notes to the Consolidated Financial Statements

1 unchanged sentence

NOTE 4 – Loans (continued)

The following table presents the aging of the amortized cost basis in past due loans by class of loans as of December 31, 2020:

The following tables present the aging of the amortized cost basis in past due loans by class of loans as of December 31, 2021 and 2020:

December 31, 2021 30-59 Days

Past Due 60-89 Days

2 unchanged sentences

Past Due Total

December 31, 2020

Commercial and Industrial Loans $ 12 $ — $ 6,147 $ 6,159 $ 486,846 $ 493,005

7 unchanged sentences

Total $ 3,182 $ 808 $ 7,500 $ 11,490 $ 2,996,436 $ 3,007,926

December 31, 2020 30-59 Days

Past Due 60-89 Days

Past Due Greater Than 89 Days Past Due Total

Past Due Loans Not

Past Due Total

Commercial and Industrial Loans $ 477 $ 909 $ 2,441 $ 3,827 $ 634,946 $ 638,773

Commercial Real Estate Loans 5 4,877 3,682 8,564 1,458,833 1,467,397

Agricultural Loans — — 651 651 375,535 376,186

Leases — — — — 55,664 55,664

Home Equity Loans 672 5 271 948 218,400 219,348

Consumer Loans 233 84 65 382 66,335 66,717

Credit Cards 95 80 86 261 11,376 11,637

Residential Mortgage Loans 3,737 1,590 529 5,856 250,420 256,276

Total $ 5,219 $ 7,545 $ 7,725 $ 20,489 $ 3,071,509 $ 3,091,998

Troubled Debt Restructurings:

10 unchanged sentences

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

Loan Modifications and Troubled Debt Restructurings due to COVID-19

On April 7, 2020, the FRB, the Office of the Comptroller of the Currency (the “OCC”), and the Federal Deposit Insurance Corporation (the “FDIC” and, together with the FRB and OCC, the “federal banking regulators”) issued a revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions, which, among other things, encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19, and stated that institutions generally do not need to categorize COVID-19-related modifications as troubled debt restructurings and that the agencies will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings.

Similarly, under the CARES Act, provisions were included that allow for loan modifications to not be classified as TDRs if certain criteria are met.

This TDR exemption, which was set to expire on December 31, 2020, was extended under the CAA to the earlier of (i) 60 days after the national emergency concerning the COVID-19 outbreak terminates, and (ii) January 1, 2022.

Notes to the Consolidated Financial Statements

1 unchanged sentence

NOTE 4 – Loans (continued)

In response to requests from borrowers who have experienced pandemic-related business or personal cash flow interruptions, and in accordance with regulatory guidance, the Company has made short-term loan modifications involving both partial and full payment deferrals.

The table below shows the payment modifications that were still in effect as of December 31, 2020, with the majority of these credit relationships making full interest payments.

The outstanding loan balance subject to payment modifications as of December 31, 2020 was substantially reduced from the comparable balances as of June 30, 2020 and September 30, 2020.

% of Loan Category

(Excludes PPP Loans)

Type of Loans

(dollars in thousands) Number of Loans Outstanding Balance

As of 12/31/2020

As of 9/30/2020

Commercial & Industrial Loans 9 $ 4,311 0.8 % 1.2 %

Commercial Real Estate Loans 15 43,951 3.0 % 5.7 %

Agricultural Loans — — — % — %

Consumer Loans 9 80 n/m (1)

Residential Mortgage Loans 4 218 0.1 % 0.5 %

Total 37 $ 48,560 1.7 % 3.1 %

(1) n/m = not meaningful

Loan Modifications and Troubled Debt Restructurings due to COVID-19

On April 7, 2020, the federal banking regulators issued a revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions, which, among other things, encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19, and stated that institutions generally do not need to categorize COVID-19-related modifications as troubled debt restructurings and that the agencies will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings.

Similarly, under the CARES Act, provisions were included that allow for loan modifications to not be classified as TDRs if certain criteria are met.

This TDR exemption, which was set to expire on December 31, 2020, was extended under the CAA to, effectively, January 1, 2022.

In response to requests from borrowers who had experienced pandemic-related business or personal cash flow interruptions, and in accordance with regulatory guidance, the Company began making short-term loan modifications involving both partial and full payment deferrals in April 2020.

As of December 31, 2021, the Company has just one commercial real estate loan, in the principal amount of $ 3.5 million, with a payment modification that is still in effect, with such credit relationship making full interest payments.

Credit Quality Indicators:

24 unchanged sentences

Doubtful — — — — — — — —

Total Commercial & Industrial Loans $ 260,788 $ 89,539 $ 50,720 $ 34,881 $ 21,838 $ 55,896 $ 125,111 $ 638,773

Total Commercial and Industrial Loans $ 141,348 $ 58,826 $ 61,110 $ 30,716 $ 17,321 $ 51,934 $ 131,750 $ 493,005

Commercial Real Estate:

18 unchanged sentences

NOTE 4 – Loans (continued)

Term Loans Amortized Cost Basis by Origination Year

As of December 31, 2020 2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Total

Commercial and Industrial:

Pass $ 260,027 $ 88,273 $ 46,681 $ 31,612 $ 21,025 $ 48,508 $ 109,228 $ 605,354

Special Mention 618 1,102 2,756 1,739 206 1,972 9,948 18,341

Substandard 143 164 1,283 1,530 607 5,416 5,935 15,078

Doubtful — — — — — — — —

Total Commercial and Industrial Loans $ 260,788 $ 89,539 $ 50,720 $ 34,881 $ 21,838 $ 55,896 $ 125,111 $ 638,773

Commercial Real Estate:

Pass $ 296,265 $ 215,226 $ 179,129 $ 183,703 $ 171,016 $ 295,641 $ 29,634 $ 1,370,614

Special Mention 883 9,361 15,232 23,489 7,578 20,294 147 76,984

Substandard — 1,131 1,735 1,692 4,292 10,849 100 19,799

Doubtful — — — — — — — —

Total Commercial Real Estate Loans $ 297,148 $ 225,718 $ 196,096 $ 208,884 $ 182,886 $ 326,784 $ 29,881 $ 1,467,397

Agricultural:

Pass $ 49,242 $ 25,449 $ 31,285 $ 32,368 $ 22,702 $ 64,890 $ 75,871 $ 301,807

Special Mention 11,503 9,911 3,111 8,767 2,707 10,125 16,318 62,442

Substandard 578 73 394 1,228 4,466 5,198 — 11,937

Doubtful — — — — — — — —

Total Agricultural Loans $ 61,323 $ 35,433 $ 34,790 $ 42,363 $ 29,875 $ 80,213 $ 92,189 $ 376,186

Pass $ 18,258 $ 17,517 $ 9,176 $ 5,415 $ 1,605 $ 3,693 $ — $ 55,664

Special Mention — — — — — — — —

Substandard — — — — — — — —

Doubtful — — — — — — — —

Total Leases $ 18,258 $ 17,517 $ 9,176 $ 5,415 $ 1,605 $ 3,693 $ — $ 55,664

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 4 – Loans (continued)

The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses.

For residential, home equity and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity.

The following table presents the amortized cost in residential, home equity and consumer loans based on payment activity.

The following tables present the amortized cost in residential, home equity and consumer loans based on payment activity.

Term Loans Amortized Cost Basis by Origination Year

13 unchanged sentences

Total Residential Mortgage Loans $ 84,809 $ 38,717 $ 15,244 $ 17,369 $ 19,688 $ 87,738 $ — $ 263,565

Term Loans Amortized Cost Basis by Origination Year

As of December 31, 2020 2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Total

Payment performance

Performing $ 33,857 $ 16,486 $ 8,456 $ 2,115 $ 910 $ 2,245 $ 2,563 $ 66,632

Nonperforming — — 11 2 14 23 35 85

Total Consumer Loans $ 33,857 $ 16,486 $ 8,467 $ 2,117 $ 924 $ 2,268 $ 2,598 $ 66,717

Payment performance

Performing $ — $ — $ 34 $ 46 $ 67 $ 490 $ 218,440 $ 219,077

Nonperforming — — — — — — 271 271

Total Home Equity Loans $ — $ — $ 34 $ 46 $ 67 $ 490 $ 218,711 $ 219,348

Residential Mortgage:

Payment performance

Performing $ 45,945 $ 26,536 $ 28,050 $ 28,764 $ 25,155 $ 100,998 $ — $ 255,448

Nonperforming — — — — — 828 — 828

Total Residential Mortgage Loans $ 45,945 $ 26,536 $ 28,050 $ 28,764 $ 25,155 $ 101,826 $ — $ 256,276

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 4 – Loans (continued)

The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses.

For certain retail loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity.

The following table presents the recorded investment in retail loans based on payment activity:

As of December 31, 2020

The following tables present the recorded investment in credit cards based on payment activity:

Credit Cards December 31, 2021 December 31, 2020

Performing $ 14,293 $ 11,551

1 unchanged sentence

Total $ 14,357 $ 11,637

The following tables present loans purchased and/or sold during the year by portfolio segment:

The following table presents loans purchased and/or sold during the year by portfolio segment:

Commercial and Industrial Loans Commercial Real Estate Loans Agricultural Loans Leases Consumer Loans Home Equity Loans Credit Cards Residential Mortgage Loans Total

5 unchanged sentences

Sales — 3,128 — — — — — — 3,128

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 4 – Loans (continued)

Certain directors, executive officers, and principal shareholders of the Company, including their immediate families and companies in which they are principal owners, were loan customers of the Company during 2021.

A summary of the activity of these loans follows:

2020 Additions Changes in Persons Included Deductions Balance

2021 Additions Changes in Persons or Interests Included Deductions Balance

Collected Charged-off

$ 41,022 $ 27,222 $ ( 2,848 ) $ ( 18,659 ) $ — $ 46,737

Allowance for Loan Losses

Allowance for Loan Losses (Prior to January 1, 2020)

Prior to the adoption of ASC 326 on January 1, 2020, the Company calculated the allowance for loan losses using the incurred loss methodology.

The following tables are disclosures related to the allowance for loan losses in prior periods.

The following tables present the activity in the allowance for loan losses by portfolio class for the years ended December 31, 2019 and 2018:

Leases Commercial

Loans Agricultural

Loans Consumer

Loans Residential

Loans Unallocated Total

December 31, 2019

Beginning Balance $ 2,953 $ 5,291 $ 5,776 $ 229 $ 420 $ 472 $ 682 $ 15,823

Provision for Loan Losses 5,600 ( 308 ) ( 461 ) ( 27 ) 727 ( 29 ) ( 177 ) 5,325

Recoveries 56 29 — 8 432 7 — 532

Loans Charged-off ( 3,810 ) ( 320 ) — ( 10 ) ( 1,145 ) ( 117 ) — ( 5,402 )

Ending Balance $ 4,799 $ 4,692 $ 5,315 $ 200 $ 434 $ 333 $ 505 $ 16,278

The following tables present the activity in the allowance for loan losses by portfolio class for the year ended December 31, 2019:

Leases Commercial

12 unchanged sentences

NOTE 4 – Loans (continued)

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of December 31, 2019:

December 31, 2019 Total Commercial

Loans and Leases Commercial

Real Estate Loans Agricultural Loans Home

Equity Loans Consumer Loans Residential

Mortgage Loans Unallocated

Allowance for Loan Losses:

Ending Allowance Balance Attributable to Loans:

Individually Evaluated for Impairment $ 2,971 $ 2,412 $ 559 $ — $ — $ — $ — $ —

Collectively Evaluated for Impairment 12,902 2,387 3,733 5,315 200 434 328 505

Acquired with Deteriorated Credit Quality 405 — 400 — — — 5 —

Total Ending Allowance Balance $ 16,278 $ 4,799 $ 4,692 $ 5,315 $ 200 $ 434 $ 333 $ 505

Loans Individually Evaluated for Impairment $ 6,269 $ 4,707 $ 1,562 $ — $ — $ — $ — n/m (2)

Loans Collectively Evaluated for Impairment 3,076,835 585,328 1,491,090 387,710 226,406 81,429 304,872 n/m (2)

Loans Acquired with Deteriorated Credit Quality 12,798 1,368 7,212 3,161 369 — 688 n/m (2)

Total Ending Loans Balance (1)

$ 3,095,902 $ 591,403 $ 1,499,864 $ 390,871 $ 226,775 $ 81,429 $ 305,560 n/m (2)

(1) Total recorded investment in loans includes $ 13,929 in accrued interest.

(2) n/m = not meaningful

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2019:

Investment Allowance for

December 31, 2019

With No Related Allowance Recorded:

Commercial and Industrial Loans and Leases $ 3,638 $ 524 $ —

Commercial Real Estate Loans 4,738 2,058 —

Agricultural Loans 3,294 2,738 —

Subtotal 11,670 5,320 —

With An Allowance Recorded:

Commercial and Industrial Loans and Leases 5,042 4,521 2,412

Commercial Real Estate Loans 2,187 1,865 959

Agricultural Loans — — —

Subtotal 7,229 6,386 3,371

Total $ 18,899 $ 11,706 $ 3,371

Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $ 9,994 $ 4,624 $ —

Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $ 1,134 $ 813 $ 400

(1) Unpaid Principal Balance is the remaining contractual payments gross of partial charge-offs and discounts.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 4 – Loans (continued)

The following tables present the average balance and related interest income of loans individually evaluated for impairment by class of loans for the years ended December 31, 2019 and 2018:

Investment Interest

Recognized Cash

December 31, 2019

With No Related Allowance Recorded:

Commercial and Industrial Loans and Leases $ 1,175 $ 19 $ 1

Commercial Real Estate Loans 2,947 81 1

Agricultural Loans 1,790 1 —

Subtotal 5,912 101 2

With An Allowance Recorded:

Commercial and Industrial Loans and Leases 3,753 — 1

Commercial Real Estate Loans 3,141 — 1

Agricultural Loans — — —

Subtotal 6,894 — 2

Total $ 12,806 $ 101 $ 4

Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $ 4,321 $ 61 $ 3

Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $ 1,766 $ — $ —

The following tables present the average balance and related interest income of loans individually evaluated for impairment by class of loans for the year ended December 31, 2019:

Investment Interest

14 unchanged sentences

Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $ 1,766 $ — $ —

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 4 – Loans (continued)

The following table presents the recorded investment in non-accrual loans and loans past due 90 days or more still on accrual by class of loans as of December 31, 2019:

Loans Past Due

90 Days or More

Non-Accrual & Still Accruing

Commercial and Industrial Loans and Leases $ 4,940 $ 190

Commercial Real Estate Loans 3,433 —

Agricultural Loans 2,739 —

Home Equity Loans 79 —

Consumer Loans 115 —

Residential Mortgage Loans 2,496 —

Total $ 13,802 $ 190

Loans Acquired With Deteriorated Credit Quality

(Included in the Total Above)

Loans Acquired in Current Year

(Included in the Total Above)

The following tables present the aging of the recorded investment in past due loans by class of loans as of December 31, 2019:

Total 30-59 Days

Past Due 60-89 Days

Past Due 90 Days

Past Due Total

Past Due Loans Not

December 31, 2019

Commercial and Industrial Loans and Leases $ 591,403 $ 4,689 $ 83 $ 799 $ 5,571 $ 585,832

Commercial Real Estate Loans 1,499,864 209 431 2,106 2,746 1,497,118

Agricultural Loans 390,871 499 — 329 828 390,043

Home Equity Loans 226,775 1,121 253 80 1,454 225,321

Consumer Loans 81,429 347 156 89 592 80,837

Residential Mortgage Loans 305,560 5,014 1,461 2,308 8,783 296,777

$ 3,095,902 $ 11,879 $ 2,384 $ 5,711 $ 19,974 $ 3,075,928

Loans Acquired With Deteriorated Credit Quality

(Included in the Total Above)

$ 12,798 $ 18 $ — $ 1,589 $ 1,607 $ 11,191

Loans Acquired in Current Year

(Included in the Total Above)

$ 321,464 $ 639 $ 1 $ 797 $ 1,437 $ 320,027

(1) Total recorded investment in loans includes $ 13,929 in accrued interest.

The risk category of loans by class of loans at December 31, 2019 is as follows:

Mention Substandard Doubtful Total

December 31, 2019

Commercial and Industrial Loans and Leases $ 556,706 $ 19,671 $ 15,026 $ — $ 591,403

Commercial Real Estate Loans 1,453,310 30,504 16,050 — 1,499,864

Agricultural Loans 325,991 49,053 15,827 — 390,871

Total $ 2,336,007 $ 99,228 $ 46,903 $ — $ 2,482,138

Loans Acquired With Deteriorated Credit Quality

(Included in the Total Above)

$ 68 $ 613 $ 11,060 $ — $ 11,741

Loans Acquired in Current Year

(Included in the Total Above)

$ 254,629 $ 16,535 $ 12,769 $ — $ 283,933

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 4 – Loans (continued)

The following table presents the recorded investment in home equity, consumer and residential mortgage loans based on payment activity as of December 31, 2019:

Loans Consumer

Loans Residential

Mortgage Loans

December 31, 2019

Performing $ 226,695 $ 81,314 $ 303,065

Nonperforming 80 115 2,495

Total $ 226,775 $ 81,429 $ 305,560

NOTE 5 – Premises, Furniture, and Equipment

13 unchanged sentences

Time deposits and brokered certificates of deposit of $250 or more at December 31, 2021 and 2020 were $ 56,195 and $ 104,518 , respectively.

Time deposits originated from outside the geographic area, generally through brokers, totaled $ 5,510 and $ 14,582 at December 31, 2020 and 2019, respectively.

Deposits from principal officers, directors, and their affiliates at year-end 2020 and 2019 were $ 79.9 million and $ 49.6 million, respectively.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 6 – Deposits (continued)

Time deposits originated from outside the geographic area, generally through brokers, totaled $ 4,001 and $ 5,510 at December 31, 2021 and 2020, respectively.

Deposits from principal officers, directors, and their affiliates at year-end 2021 and 2020 were $ 72.0 million and $ 79.9 million, respectively.

NOTE 7 – FHLB Advances and Other Borrowings

2 unchanged sentences

Long-term Advances from Federal Home Loan Bank collateralized by qualifying mortgages, investment securities, and mortgage-backed securities $ 25,000 $ 83,000

Term Loans — —

Junior Subordinated Debentures assumed from American Community Bancorp, Inc.

16 unchanged sentences

Weighted Average Interest Rate at Year-end 0.10 % 0.10 %

At December 31, 2020, interest rates on the fixed rate long-term FHLB advances ranged from 1.54 % to 2.23 % with a weighted average rate of 1.87 %.

At December 31, 2021, the Company held one long-term FHLB advance with an interest rate of 1.54 %.

At December 31, 2020 interest rates on the fixed rate long-term FHLB advances ranged from 1.54 % to 2.23 % with a weighted average rate of 1.87 %.

5 unchanged sentences

The Notes have a ten-year term, from and including the date of issuance to but excluding June 30, 2024, and will bear interest at a fixed annual rate of 4.50 %, payable semi-annually in arrears.

From and including June 30, 2024 to but excluding the maturity date or early redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to the then-current three-month LIBOR (provided, however, that in the event three-month LIBOR is less than zero , three-month LIBOR shall be deemed to be zero ) plus 268 basis points, payable quarterly in arrears.

The Notes are redeemable, in whole or in part, on June 30, 2024, on any scheduled interest payment date thereafter and at any time upon the occurrence of certain events.

From and including June 30, 2024 to but excluding the maturity date or early redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to the then-current three-

Notes to the Consolidated Financial Statements

1 unchanged sentence

NOTE 7 - FHLB Advances and Other Borrowings (continued)

Agreement contains certain customary representations, warranties and covenants made by the Company, on the one hand, and the Purchasers, severally and not jointly, on the other hand.

month LIBOR (provided, however, that in the event three-month LIBOR is less than zero , three-month LIBOR shall be deemed to be zero ) plus 268 basis points, payable quarterly in arrears.

The Notes are redeemable, in whole or in part, on June 30, 2024, on any scheduled interest payment date thereafter and at any time upon the occurrence of certain events.

The Purchase Agreement contains certain customary representations, warranties and covenants made by the Company, on the one hand, and the Purchasers, severally and not jointly, on the other hand.

The Notes were issued under an Indenture, dated June 25, 2019, by and between the Company and U.S.

32 unchanged sentences

2.01 % 2.06 % July 2035

RIVR Statutory Trust 1 3/26/2003 7,217 5,923 3-Month LIBOR + 3.15 %

RIVR Statutory Trust I 3/26/2003 7,217 6,029 3-Month LIBOR + 3.15 %

3.37 % 3.40 % March 2033

5 unchanged sentences

Capital amounts and classifications are also subject to qualitative judgments by regulators.

Failure to meet capital requirements can initiate regulatory action.

The current risk-based capital rules, as adopted by federal banking regulators, are based upon guidelines developed by the Basel Committee on Banking Supervision and reflect various requirements of the Dodd-Frank Act (the “Basel

Failure to meet capital requirements can initiate

Notes to the Consolidated Financial Statements

1 unchanged sentence

NOTE 8 – Shareholders' Equity (continued)

The Basel III Rules require banking organizations to, among other things, maintain a minimum ratio of Total Capital to risk-weighted assets, a minimum ratio of Tier 1 Capital to risk-weighted assets, a minimum ratio of “Common Equity Tier 1 Capital” to risk-weighted assets, and a minimum leverage ratio (calculated as the ratio of Tier 1 Capital to adjusted average consolidated assets).

regulatory action.

Tier 1 Capital” to risk-weighted assets, and a minimum leverage ratio (calculated as the ratio of Tier 1 Capital to adjusted average consolidated assets).

In addition, under the Basel III Rules, in order to avoid limitations on capital distributions, including dividend payments, the Company is required to maintain a 2.5 % capital conservation buffer above the adequately capitalized regulatory capital ratios.

9 unchanged sentences

Minimum Required To Be Well-Capitalized Under Prompt Corrective Action Regulations:

Amount Ratio Amount Ratio (1)

Amount Ratio Amount Ratio ⁽¹⁾ Amount Ratio

Total Capital (to Risk Weighted Assets)

17 unchanged sentences

Minimum Required To Be Well-Capitalized Under Prompt Corrective Action Regulations:

Amount Ratio Amount Ratio (1)

Amount Ratio Amount Ratio ⁽¹⁾ Amount Ratio

Total Capital (to Risk Weighted Assets)

18 unchanged sentences

The Company adopted the capital transition relief over the permissible five-year period.

The Company has taken advantage of the capital transition relief over the permissible five-year period and will begin the three-year phase-in of the regulatory impact effective January 1, 2022.

Equity Plans and Equity Based Compensation

23 unchanged sentences

In 2020, 100 % of the cash portion of an award vests towards the end of the year in which the grant was made, followed by the restricted stock grants vesting 50 % in each of the 2nd and 3rd years.

Beginning in 2021, for named executive officers, awards are granted in the form of 100 % restricted stock grants which will vest in one-third installments on the first, second and third anniversaries of the award date.

Awards that are granted to directors as additional retainers for their services do not include any cash credit entitlement.

38 unchanged sentences

On January 25, 2021, the Company’s Board of Directors approved a plan to repurchase up to one million shares of the Company’s outstanding common stock.

On a share basis, the amount of common stock subject to the repurchase plan represents approximately 4 % of the Company’s outstanding shares.

On a share basis, the amount of common stock subject to the repurchase plan represented approximately 4 % of the Company’s outstanding shares at the time it was adopted.

During 2021, the Company did no t repurchase any of its outstanding common stock.

The 2021 plan replaced a similar share repurchase plan approved by the Company’s Board of Directors on January 27, 2020.

At the time of its termination in 2021, the Company had repurchased 221,912 shares of common stock under the 2020 plan.

On January 31, 2022, the Company’s Board of Directors terminated the 2021 repurchase plan and approved a new plan to repurchase up to one million shares of the Company’s outstanding common stock.

On a share basis, the amount of common stock subject to the new repurchase plan represented approximately 3 % of the Company’s outstanding shares on the date it was approved.

The Company is not obligated to purchase shares under the plan, and the plan may be discontinued at any time.

The actual timing, number and share price of shares purchased under the repurchase plan will be determined by the Company at its discretion and will depend upon such factors as the market price of the stock, general market and economic conditions and applicable legal requirements.

At the time it approved the new plan, the Board also terminated a similar program that had been adopted in 2001.

At the time of its termination, the Company had been authorized to purchase up to 409,184 shares of common stock under the 2001 program.

The Company has repurchased 221,912 shares of common stock under the 2020 plan.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 9 - Employee Benefit Plans

2 unchanged sentences

Company contributions were $ 2,050 , $ 1,956 , and $ 1,755 for 2021, 2020, and 2019, respectively.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 9 – Employee Benefit Plans (continued)

The Company self-insures employee health benefits.

32 unchanged sentences

Discount Rate 2.31 % 1.81 % 2.81 %

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 9 – Employee Benefit Plans (continued)

Assumed Health Care Cost Trend Rates at Year-end:

2 unchanged sentences

Year that the Rate Reaches the Rate it is Assumed to Remain at 2028 2027

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 9 – Employee Benefit Plans (continued)

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan.

22 unchanged sentences

The Company's contributions to the Pentegra DB Plan for the fiscal year ending December 31, 2021 were not more than 5 % of total contributions to the Pentegra DB Plan for the year ending June 30, 2020.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 10 - Income Taxes

6 unchanged sentences

Total $ 18,648 $ 12,834 $ 12,017

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 10 – Income Taxes (continued)

Effective tax rates differ from the federal statutory rate of 21 % for 2021, 2020 and 2019 applied to income before income taxes due to the following:

12 unchanged sentences

Lease Liability (Operating Leases) 1,542 2,055

Unrealized Loss on Securities — —

Deferred Compensation and Employee Benefits 878 823

6 unchanged sentences

Net Operating Loss Carryforward 447 1,010

Mortgage Servicing Rights 49 —

Other 1,860 1,000

14 unchanged sentences

Net Deferred Tax Liability $ ( 6,931 ) $ ( 9,635 )

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 10 – Income Taxes (continued)

Under the Internal Revenue Code, through 1996, three acquired banking companies, which are now a part of the Company’s single banking subsidiary, were allowed a special bad debt deduction related to additions to tax bad debt reserves established for the purpose of absorbing losses.

1 unchanged sentence

Subject to certain limitations, these banks were permitted to deduct from taxable income an allowance for bad debts based on a percentage of taxable income before such deductions or actual loss experience.

The Banks generally computed its annual addition to its bad debt reserves using the percentage of taxable income method;

Each of the banks generally computed its annual addition to its bad debt reserves using the percentage of taxable income method;

however, due to certain limitations in 1996, the banks were only allowed a deduction based on actual loss experience.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 10 – Income Taxes (continued)

Retained earnings at December 31, 2021, include approximately $ 5,095 for which no provision for federal income taxes has been made.

15 unchanged sentences

2014-09, Revenue from Contracts with Customers (Topic 606), for the years ended December 31, 2021 and 2020.

Trust and investment product fees are included in the trust and investment advisory services segment while insurance revenues are included in the insurance segment.

Trust and investment product fees are included in the wealth management services segment while insurance revenues are included in the insurance segment.

All other revenue streams are primarily included in the banking segment.

1 unchanged sentence

In-Scope of Topic 606:

Trust and Investment Product Fees $ 8,005 $ 7,278 $ 6,680

Wealth Management & Investment Services Income $ 10,321 $ 8,005 $ 7,278

Service Charges on Deposit Accounts 7,723 7,334 8,718

8 unchanged sentences

The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services.

Transaction-based fees, which include services such as stop payment charges and statement rendering, are recognized at the time the transaction is executed (the point in time the Company fills the customer's request).

Transaction-based fees, which include services such as stop payment charges and

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 11 – Revenue Recognition (continued)

statement rendering, are recognized at the time the transaction is executed (the point in time the Company fills the customer’s request).

Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation.

3 unchanged sentences

Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 11 – Revenue Recognition (continued)

Trust and Investment Product Fees:

The Company earns trust and investment brokerage fees from its contracts with trust and brokerage customers to manage assets for investment and/or to transact their accounts.

Wealth Management and Investment Services Income:

The Company earns wealth management and investment services income from its contracts with wealth management customers to manage assets for investment and/or to transact their accounts.

These fees are primarily earned over time as the Company provides the contracted monthly or quarterly services and are generally assessed based on the market value of assets under management at month-end.

26 unchanged sentences

The lease liability is included in the ‘Accrued Interest Payable and Other Liabilities’ line of the consolidated balance sheet.

The Company used the implicit lease rate when determining the present value of lease payments for finance leases.

The present value of lease payments for operating leases was determined using the incremental borrowing rate as of the date the Company adopted this standard.

Notes to the Consolidated Financial Statements

1 unchanged sentence

NOTE 13 – Leases (continued)

The Company used the implicit lease rate when determining the present value of lease payments for finance leases.

The present value of lease payments for operating leases was determined using the incremental borrowing rate as of the date the Company adopted this standard.

The components of lease expense were as follows:

81 unchanged sentences

Level 3 pricing is obtained from a third-party based upon similar trades that are not traded frequently without adjustment by the Company.

At December 31, 2020, the Company held $ 497 thousand in Level 3 securities which consist of non-rated Obligations of State and Political Subdivisions.

At December 31, 2021, the Company held no Level 3 securities which consist of non-rated Obligations of State and Political Subdivisions.

Absent the credit rating, significant assumptions must be made such that the credit risk input becomes an unobservable input and thus these investment securities are reported by the Company in a Level 3 classification.

57 unchanged sentences

Derivative Liabilities $ — $ 9,353 $ — $ 9,353

As of December 31, 2020 and 2019, the aggregate fair value, contractual balance (including accrued interest), and gain or loss were as follows:

As of December 31, 2021 and 2020, the aggregate fair value, contractual balance (including accrued interest), and gain or loss on Loans Held-for-Sale were as follows:

Aggregate Fair Value $ 10,585 $ 16,904

26 unchanged sentences

Residential Mortgage Loans — — — —

Fair value for collateral dependent loans, had a carrying amount of $ 14,873 , with a valuation allowance of $ 5,657 , resulting in an increase to the provision for credit losses of $ 330 for the year ended December 31, 2020.

As discussed in Note 1 - Summary of Significant Accounting Policies, the Company adopted ASC 326 on January 1, 2020.

The table below is based upon previously applicable GAAP.

Fair Value Measurements at December 31, 2020 Using

3 unchanged sentences

(Level 3) Total

Impaired Loans

Individually Analyzed Loans

Commercial and Industrial Loans $ — $ — $ 4,985 $ 4,985

Commercial Real Estate Loans — — 8,893 8,893

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $ 5,574 with a valuation allowance of $ 2,971 , resulting in an increase to the provision for loan losses of $ 1,149 for the year ended December 31, 2019.

Agricultural Loans — — 551 551

Home Equity Loans — — 369 369

Residential Mortgage Loans — — 75 75

There was no Other Real Estate carried at fair value less costs to sell at December 31, 2021 and 2020.

12 unchanged sentences

December 31, 2020 Fair Value Valuation Technique(s) Unobservable Input(s) Range (Weighted Average)

Impaired Loans - Commercial and Industrial Loans $ 2,109 Sales comparison approach Adjustment for physical condition of comparable properties sold 29 % - 100 %

Impaired Loans - Commercial Real Estate Loans $ 493 Sales comparison approach Adjustment for physical condition of comparable properties sold 47 % - 91 %

Individually Analyzed Loans - Commercial and Industrial Loans $ 4,985 Sales comparison approach Adjustment for physical condition of comparable properties sold 26 % - 100 %

Individually Analyzed Loans - Commercial Real Estate Loans $ 8,893 Sales comparison approach Adjustment for physical condition of comparable properties sold 30 % - 100 %

Individually Analyzed Loans - Agricultural Loans $ 551 Sales comparison approach Adjustment for physical condition of comparable properties sold 30 % - 96 %

Individually Analyzed Loans - Consumer Loans $ — Sales comparison approach Adjustment for physical condition of comparable properties sold 100 %

Individually Analyzed Loans - Home Equity Loans $ 369 Sales comparison approach Adjustment for physical condition of comparable properties sold 9 % - 9 %

Individually Analyzed Loans - Residential Mortgage Loans $ 75 Sales comparison approach Adjustment for physical condition of comparable properties sold 43 % - 97 %

The carrying amounts and estimated fair values of the Company’s financial instruments not previously presented are provided in the tables below for the periods ending December 31, 2021 and 2020.

1 unchanged sentence

Because no active market exists for a significant portion of the Company’s financial instruments, fair value estimates were based on subjective judgments, and therefore cannot be determined with precision.

In accordance with the adoption of ASU 2016-01, the table below for December 31, 2020 and 2019, present the fair values measured using an exit price notion.

Notes to the Consolidated Financial Statements

54 unchanged sentences

Net Gains on Securities 2,247 — — — 2,247

Trust and Investment Product Fees 3 8,002 — — 8,005

Wealth Management and Investment Services Income 4 10,317 — — 10,321

Insurance Revenues 14 7 9,247 — 9,268

10 unchanged sentences

Net Gains on Securities 4,081 — — — 4,081

Trust and Investment Product Fees 4 7,274 — — 7,278

Wealth Management and Investment Services Income 3 8,002 — — 8,005

Insurance Revenues 12 15 8,895 — 8,922

Noncash Items:

Provision for Loan Losses 5,325 — — — 5,325

Provision for Credit Losses 17,550 — — — 17,550

Depreciation and Amortization 9,012 28 68 321 9,429

7 unchanged sentences

Net Gains on Securities 1,248 — — — 1,248

Trust and Investment Product Fees 4 6,676 — — 6,680

Wealth Management and Investment Services Income 4 7,274 — — 7,278

Insurance Revenues 25 28 8,887 — 8,940

128 unchanged sentences

Receivables acquired that were not subject to these requirements include non-impaired loans and customer receivables with a fair value of $ 349.9 million and unpaid principal of $ 353.3 million on the date of acquisition.

The following table presents unaudited pro forma information as if the acquisition had occured on January 1, 2018 after giving effect to certain adjustments.

The unaudited pro forma information for the years ended December 31, 2019 and 2018 includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, interest expense on deposits and borrowings acquired, and the related income tax effects.

The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed date.

Notes to the Consolidated Financial Statements

1 unchanged sentence

NOTE 18 – Business Combinations, Goodwill and Intangible Assets (continued)

Unaudited Pro Forma

Year Ended 12/31/2019 Unaudited Pro Forma

Year Ended 12/31/2018

Net Interest Income $ 155,439 $ 134,129

Non-interest Income 46,857 40,678

Total Revenue 202,296 174,807

Provision for Loan Losses Expense 5,648 2,070

Non-interest Expense 116,083 107,995

Income Before Income Taxes 80,565 64,742

Income Tax Expense 14,358 11,281

Net Income $ 66,207 $ 53,461

Earnings Per Share and Diluted Earnings Per Share $ 2.48 $ 2.13

The above pro forma financial information includes approximately $ 6,624 of net income and $ 18,436 of total revenue related to the operations of Citizens First during the year ended 2019.

The above pro forma financial information related to 2019 excludes non-recurring merger costs that totaled $ 3,205 on a pre-tax basis for the year ended December 2019.

The above pro forma financial information excludes the Citizens First provision for loan loss recognized during the year ended 2019.

Under acquisition accounting treatment, loans are recorded at fair value which includes a credit risk component, and therefore the provision for loan loss recognized during the year ended December 31, 2018 was presumed to not be necessary.

First Security Acquisition

Effective October 15, 2018, the Company acquired First Security, Inc.

("First Security") and its subsidiary, First Security Bank, Inc., pursuant to an Agreement and Plan of Reorganization dated May 22, 2018.

The acquisition was accomplished by the merger of First Security with and into the Company, immediately followed by the merger of First Security Bank with and into the Company's bank subsidiary, German American Bank.

First Security Bank operated 11 banking offices in Owensboro, Bowling Green, Franklin and Lexington, Kentucky and in Evansville and Newburgh, Indiana.

First Security's consolidated assets and equity (unaudited) as of October 14, 2018 totaled $ 563.0 million and $ 58.3 million, respectively.

The Company accounted for the transaction under the acquisition method of accounting which means that the acquired assets and liabilities were recorded at fair value at the date of acquisition.

In accordance with ASC 805, the Company has expensed approximately $ 4.0 million of direct acquisition costs and recorded $ 43.2 million of goodwill and $ 6.1 million of intangible assets.

The intangible assets are related to core deposits and are being amortized over 8 years.

For tax purposes, goodwill totaling $ 43.2 million is non-deductible but will be evaluated annually for impairment.

The following table summarizes the fair value of the total consideration transferred as a part of the First Security acquisition as well as the fair value of identifiable assets acquired and liabilities assumed as of the effective date of the transaction.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 18 – Business Combinations, Goodwill and Intangible Assets (continued)

Consideration

Cash for Options and Fractional Shares $ 132

Cash Consideration 31,039

Equity Instruments 64,898

Fair Value of Total Consideration Transferred $ 96,069

Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:

Cash $ 13,605

Interest-bearing Time Deposits with Banks 250

Securities 109,580

Loans 390,106

Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost 2,607

Premises, Furniture & Equipment 11,149

Other Real Estate 468

Intangible Assets 6,139

Company Owned Life Insurance 13,135

Accrued Interest Receivable and Other Assets 6,126

Deposits - Non-interest Bearing ( 66,112 )

Deposits - Interest Bearing ( 358,285 )

FHLB Advances and Other Borrowings ( 73,275 )

Accrued Interest Payable and Other Liabilities ( 2,618 )

Total Identifiable Net Assets $ 52,875

Goodwill $ 43,194

Under the terms of the merger agreement, the Company issued approximately 1,988,000 shares of its common stock to the former shareholders of First Security.

Each First Security common shareholder of record at the effective time of the merger (other than those holding shares in the First Security, Inc.

401k and Employee Stock Ownership Plan (the "First Security KSOP")) became entitled to receive 0.7982 shares of common stock of the Company for each of their former shares of First Security common stock.

In connection with the closing of the merger, the Company paid to First Security's shareholders of record at the close of business on October 14, 2018, cash consideration of $ 12.00 per First Security share, other than First Security KSOP shares (an aggregate of $ 29,886 to shareholders), and cash consideration of $ 40.00 per First Security KSOP share (an aggregate of $ 1,153 ), and the Company paid approximately $ 124 to persons who held options to purchase First Security common stock (all of which rights were canceled at the effective time of the merger and were not assumed by the Company).

This acquisition was consistent with the Company’s strategy to build a regional presence in Southern Indiana and Kentucky.

The acquisition offers the Company the opportunity to increase profitability by introducing existing products and services to the acquired customer base as well as add new customers in the expanded region.

The fair value of net assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date.

The fair value adjustments were determined using discounted cash flows.

However, the Company believes that all contractual cash flows related to these financial instruments will be collected.

As such, these receivables were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit impaired loans, which are loans that have shown evidence of credit deterioration since origination.

Receivables acquired that were not subject to these requirements include non-impaired loans and customer receivables with a fair value of $ 382.4 million and unpaid principal of $ 385.4 million on the date of acquisition.

Branch Acquisition

On May 18, 2018, German American Bank completed the acquisition of five branch locations of First Financial Bancorp (formerly branch locations of Mainsource Financial Group, Inc.

prior to its merger with First Financial Bancorp on April 1, 2018) and certain related assets, and the assumption by German American Bank of certain related liabilities.

Four of the branches are located in Columbus, Indiana, and one in Greensburg, Indiana.

At the time of closing, German American Bank

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 18 – Business Combinations, Goodwill and Intangible Assets (continued)

acquired approximately $ 175.7 million in deposits and approximately $ 116.3 million in loans associated with the five bank branches.

The premium paid on deposits by German American Bank was approximately $ 7.4 million.

The premium was subject to adjustment to reflect increases or decreases in the deposit balances during the six month period following the closing date.

In January 2019, an adjustment of approximately $ 0.1 million in additional premium was paid by German American Bank as a result of the change in deposits during the six month measurement period.

German American Bank also had the ability, under certain circumstances, to put loans back to First Financial Bancorp’s bank subsidiary during such six month period.

During the fourth quarter of 2018, approximately $ 1.3 million of loans were put back by German American Bank.

The Company accounted for the transaction under the acquisition method of accounting, which means that the acquired assets and liabilities were recorded at fair value at the date of acquisition.

This branch acquisition was consistent with the Company's strategy to continue building its regional presence in Southern Indiana.

In accordance with ASC 805, the Company has expensed approximately $ 691 of direct acquisition costs and recorded $ 7.0 million of goodwill and $ 3.5 million of intangible assets.

The intangible assets are related to core deposits and are being amortized over 8 years.

For tax purposes, goodwill totaling $ 7.0 million is tax deductible and will be amortized over 15 years.

The following table summarizes the fair value of the total cash received as part of the branch acquisition as well as the fair value of identifiable assets acquired and liabilities assumed as of the effective date of the transaction.

Total Cash Received from First Financial $ 41,826

Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:

Loans 116,305

Premises, Furniture & Equipment 5,666

Intangible Assets 3,475

Accrued Interest Receivable and Other Assets 780

Deposits - Non-interest Bearing ( 39,607 )

Deposits - Interest Bearing ( 136,096 )

Accrued Interest Payable and Other Liabilities ( 70 )

Total Identifiable Net Assets $ ( 48,791 )

Goodwill $ 6,965

The changes in the carrying amount of goodwill for the periods ended December 31, 2021, 2020, and 2019, were classified as follows:

2 unchanged sentences

Acquired Goodwill — 650 17,625

Impairment — — —

Adjustments ( 195 ) — —

End of Year $ 121,761 $ 121,956 $ 121,306

Of the $ 121,761 carrying amount of goodwill, $ 120,429 is allocated to the core banking segment, and $ 1,332 is allocated to the insurance segment for the period ended December 31, 2021.

During 2020, the Company finalized valuation estimates for the Citizens First acquisition and recorded $ 650 of additional goodwill.

The decrease of $ 195 in 2021 is attributable to the sale of two branches located in Lexington, Kentucky.

Of the $ 121,956 carrying amount of goodwill, $ 120,624 is allocated to the core banking segment, and $ 1,332 is allocated to the insurance segment for the period ended December 31, 2020.

During 2020, the Company finalized valuation estimates for the Citizens First acquisition and recorded $ 650 of additional goodwill.

Of the $ 121,306 carrying amount of goodwill, $ 119,974 is allocated to the core banking segment, and $ 1,332 is allocated to the insurance segment for the period ended December 31, 2019.

1 unchanged sentence

At December 31, 2021, the Company’s reporting units had positive equity, and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting units exceeded its carrying value, including goodwill.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 18 – Business Combinations, Goodwill and Intangible Assets (continued)

qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment.

The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment.

Acquired Intangible Assets

11 unchanged sentences

Amortization Expense was $ 2,731 , $ 3,539 and $ 3,721 , for 2021, 2020 and 2019.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 18 – Business Combinations, Goodwill and Intangible Assets (continued)

Estimated amortization expense for each of the next five years is as follows:

9 unchanged sentences

Reclassification ( 18,116 ) — ( 18,116 )

23,494 — 23,494

Amounts Reclassified from Accumulated

Other Comprehensive Income (Loss) ( 1,775 ) — ( 1,775 )

( 3,224 ) — ( 3,224 )

Net Current Period Other

1 unchanged sentence

Ending Balance $ 16,052 $ ( 568 ) $ 15,484

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 19 – Other Comprehensive Income (Loss) (continued)

December 31, 2020 Unrealized

6 unchanged sentences

Reclassification 23,494 — 23,494

23,418 ( 256 ) 23,162

Amounts Reclassified from Accumulated

Other Comprehensive Income (Loss) ( 3,224 ) — ( 3,224 )

( 986 ) 27 ( 959 )

Net Current Period Other

11 unchanged sentences

Total Reclassifications for the Period $ 1,775

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 19 – Other Comprehensive Income (Loss) (continued)

The table below summarizes the classifications out of accumulated other comprehensive income (loss) by component for the year ended December 31, 2020:

7 unchanged sentences

— Income Tax Expense

( 27 ) Net of Tax

Total Reclassifications for the Period $ 3,224

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 19 – Other Comprehensive Income (Loss) (continued)

The table below summarizes the classifications out of accumulated other comprehensive income (loss) by component for the year ended December 31, 2019:

9 unchanged sentences

Total Reclassifications for the Period $ 959

Note 20 - Quarterly Financial Data (Unaudited)

The following table represents selected quarterly financial data for the Company:

Interest Income Net Interest Income Net Income Basic Earnings per Share Diluted Earnings per Share

First Quarter $ 43,571 $ 36,256 $ 12,472 $ 0.47 $ 0.47

Second Quarter 43,541 38,459 14,255 0.54 0.54

Third Quarter 42,113 38,388 14,593 0.55 0.55

Fourth Quarter 45,144 42,140 20,890 0.79 0.79

First Quarter $ 41,189 $ 33,591 $ 15,067 $ 0.60 $ 0.60

Second Quarter 41,036 33,641 15,271 0.61 0.61

Third Quarter 46,911 38,578 13,064 0.49 0.49

Fourth Quarter 47,338 39,415 15,820 0.59 0.59

NOTE 20 - Subsequent Events

On January 1, 2022, the Company acquired Citizens Union Bancorp of Shelbyville, Inc.

(“CUB”) through the merger of CUB with and into the Company.

This was immediately followed by the merger of Citizens Union Bank of Shelbyville, Inc., a wholly-owned subsidiary of CUB, into the Company’s subsidiary bank, German American Bank.

CUB, headquartered in Shelbyville, Kentucky, operated 15 retail banking offices located in Shelby, Jefferson, Spencer, Bullitt, Oldham, Owen, Gallatin and Hardin counties in Kentucky through Citizens Union Bank of Shelbyville, Inc.

As of the closing of the transaction, CUB had total assets of approximately $ 1,108,546 (unaudited), total loans of approximately $ 683,807 (unaudited), and total deposits of approximately $ 930,533 (unaudited).

The acquired assets and liabilities will be recorded at fair value at the date of acquisition and will be reflected in the Company’s March 31, 2022 financial statements as such.

At the time of these consolidated financial statements, the Company is evaluating CUB’s loan portfolio to determine the impact of day-one accounting under the CECL methodology.

Valuations and appraisals on other assets and liabilities are also in process and are not complete as of the time of these financial statements.

The Company issued approximately 2.9 million shares of its common stock, and paid approximately $ 50,805 in cash, in exchange for all of the issued and outstanding shares of common stock of CUB.

Notes to the Consolidated Financial Statements

Dollars in thousands, except per share data

NOTE 20 – Subsequent Events (continued)

This acquisition was consistent with the Company’s strategy to build a regional presence in Southern Indiana and Kentucky.

Consideration

Cash for Stock Options and Fractional Shares $ 942

Cash Consideration 49,863

Equity Instruments 111,914

Fair Value of Total Consideration Transferred $ 162,719

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data